Three ETFs to Watch This Week: RTH, SWH, XLUS

The past week was marked by a flurry of activity in the U.S. as all eyes were fixed on the federal government with Congress' session nearing a close. The legislative branch was finally able to extend the Bush-era tax cuts for another two years, with Obama signing the law late Friday. The passing of this legislation is expected to boost consumer spending and promote economic growth, though it will further the already massive debt our country has accumulated. In Europe, Moody's issued a downgrade warning to both Belgium and Spain, as the countries' financial woes grow more severe by the day. While a bailout may be necessary for these nations, the EU is working on a solution that goes beyond issuing debt, to break out of the crisis which is threatening to tailspin out of control in the common currency bloc [see also Top Five Commodity ETFs of 2010].

This week will bring some more important economic data from the U.S., as both government reports and earnings will dominate the shortened trading week (markets are closed on Friday in observance of Christmas on Saturday). GDP growth for the U.S. will come in, along with quarterly reports from major firms like Nike and Walgreen's (NYSE: WAG). Meanwhile, the Bank of Japan will meet on Tuesday while tensions look to remain high in the eurozone, especially given the five notch downgrade of Ireland by Moody's on Friday. With this backdrop, we outline three ETFs that may be big movers on the week.

HOLDRS Merrill Lynch Retail (AMEX: RTH)
Why RTH Will Be in Focus: This HOLDR contains the who's-who of major U.S. retailers, including Wal-Mart (19.6%), Amazon (11.4%), and Walgreen's (6.5%). RTH has had a strong 2010, returning nearly 13% with a dividend yield of 0.8%. A number of factors will combine to make this fund an important one to watch as the week plays out. For starters, Walgreen's will report earnings on Wednesday, and is expected to haul in revenues over $17 billion. Along with an earnings report from one of its major holdings, RTH will also be in focus amid the last-minute holiday shopping that many Americans are prone to. Frantic shopping should turn into good revenues for the majority of RTH's holdings, especially given the bullish outlook from FedEx last week, a situation that could make for high expectations for the final week of the holiday shopping season for these important retailers [see also Judgment Day For Retail ETFs].

HOLDRS Merrill Lynch Software (AMEX: SWH)
Why SWH Will Be in Focus: SWH's top holdings allocate to big name software developers like Microsoft, Adobe (Nasdaq: ADBE), and Oracle. The ETF has returned over 12% on the year and was boosted by a 0.6% annual dividend. On Monday, Adobe will report their quarterly earnings which looks to put the entire sector in focus. Analysts predict the firm to report EPS of $0.52 with revenues just under $1 billion. Adobe has hit their earnings marks for the last four quarters, so investors will hope for this trend to continue later today. As Adobe makes up over 8% of this ETF, its earnings results will have a large impact on how this fund performs this shortened week and could set the tone for the sector heading into 2011 [see also Will Troubles at SAP Sink the Software ETF?].

S&P SmallCap Utilities Portfolio (XLUS)
Why XLUS Will Be in Focus: This fund tracks the S&P SmallCap 600 Utilities Index , which is comprised of common stocks of U.S. utilities companies. Top holdings of the ETF include Piedmont Natural Gas Company (10.3%), Southwest Gas (7.6%), and CH Energy Group (4.3%). XLUS has just under 12% with a dividend of 0.73%. On Monday, Piedmont Natural Gas will release their earnings reports from their most recent quarter, which will likely have a major impact on the fund. Analysts estimate the company to have EPS of -0.09 and revenues at $266 million. Piedmont has missed their past two earnings estimates by a considerable amount, and with natural gas prices all over the board, it should come as no surprise to see this company struggling as 2010 comes to a close. As it seems pretty likely that Piedmont will disappoint, even if it makes its marks, XLUS may make for interesting short exposure as the week plays out, but as always, be careful when dealing with often volatile natural gas.

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Disclosure: No positions at time of writing.

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