Published October 29, 2013
Below is your ETF Outlook for Tuesday October 29, 2013.
iShares U.S. Technology ETF (IYW)
After the closing bell Monday,Apple (AAPL) reported quarterly earnings and is on the move. After falling initially after the news hit the wires, the stock has rebounded and is little changed from Mondays closing price. There should be some volatility throughout the morning and day as investors digest the numbers.
The stock makes up an eye-popping 17.35 percent of IYW and therefore expect the ETF to move with AAPL when the opening bell rings today. The two other largest holdings in the ETF, Google (GOOG) and Microsoft (MSFT), already reported better than expected earnings and helped send the ETF to the highest level in a decade.
iShares Mortgage Real Estate ETF (REM)
Another stock that accounts for a large portion of an ETF reported earnings yesterday, American Capital Agency (AGNC). The mortgage REIT released its quarter numbers and was trading lower. The stock is the second largest holding in REM with a 14.3 percent allocation. The top holding is Annaly Capital Management (NLY) at 17.2 percent.
REM was a big winner before the Fed began talking taper and interest rates increased in May. Over the last month the ETF has been able to move higher as interest rates have pulled back, but the overall trend for the ETF is troublesome. The one silver lining is the 13.3 percent dividend yield the ETF offers.
But, investors need to remember that buying an ETF based solely on a dividend yield can be dangerous as a loss in the ETF can wipe out any dividend payouts quickly.
iShares National AMT-Free Muni Bond ETF (MUB)
According to JPMorgan Chase (JPM), the muni bond market is not only cheap versus treasuries, but also against corporate bonds. The firm notes that bonds issued by municipalities have decreased since interest rates began to tick higher.
This could cause a supply issue if demand remains strong. MUB has been moving higher for the last two years and is trading near a three-month high. Because the interest paid on munis is tax-free it makes the ETF attractive for investors that are in a high tax bracket. The current tax equivalent yield for MUB is 5.46 percent, based on the highest tax bracket of 43.4 percent.
SPDR S&P 500 ETF (SPY)
The S&P 500 closed up again on Monday to another new all-time high. It is not recommended to fight the trend and attempt to pick the top. That being said, the market is becoming overbought in the short-term based on the charts and investors may consider taking profits in select stocks. As far as the overall market is concerned, SPY is a great gauge to watch.
The first level of support on SPY is $173.60, followed by $171. A pullback to either level will likely be a short-term swing and a buying opportunity for investors looking to put more cash to work in the U.S. stock market.
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