Last week, the S&P 500 surged 3.3 percent in what was the benchmark U.S. index's best weekly showing this year. The Nasdaq Composite climbed 2.6 percent last week, but last week's ebullience will be tested this week amid an avalanche of third-quarter earnings reports.
Most strategists are forecasting significant weakness in third-quarter earnings with the energy sector being a particularly egregious offender. Some market observers are forecasting a decline in energy sector earnings of 60 percent or more. The energy sector is the sixth-largest sector weight in the S&P 500 at almost 7.4 percent of the index's weight.
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Sticking with the theme of the earnings avalanche, the Financial Select Sector SPDR (NYSE:XLF), the largest financial services exchange traded fund, and rival funds are among the must-watch ETFs for the week because bank stocks will lead the earnings parade. The fun starts with Dow component J.P. Morgan Chase & Co. (NYSE:JPM) on Tuesday.
Related Link: Earnings Crunch Begins: Big Banks In The Spotlight
On Wednesday, Bank of America Corp. (NYSE:BAC), BlackRock Inc. (NYSE:BLK) and Wells Fargo & Co. (NYSE:WFC) step into the earnings confessional. Citigroup Inc. (NYSE:C), Dow component Goldman Sachs Group Inc. (NYSE:GS) and U.S. Bancorp Inc. (NYSE:USB) follow suit on Thursday. The aforementioned stocks combine for over a third of XLF's weight. Bottom line: This is a pivotal week for financial services ETFs.
Another idea to consider is the $291.2 million iShares U.S. Broker-Dealers ETF (NYSE:IAI). Including Goldman Sachs, the ETF's largest holding, at least 19 percent of IAI's reports earnings in the week ahead.
It is safe to assume that plenty of investors have heard about oil rallying and that has had a positive impact on the energy sector. Last week, the Market Vectors Oil Services ETF (NYSE:OIH) surged 11.2 percent. Often highly correlated to oil's price action, OIH and rival oil services ETFs will one marquee earnings report to digest this week. On Thursday, Schlumberger Ltd. (NYSE:SLB) reports third-quarter results.
Schlumberger, the world's largest provider of oilfield services, commands 18.9 percent of OIH's weight, or nearly 700 basis points more than the weight assigned to the ETF's second-largest holding. Notable is the fact the half of last week's 10 best non-leveraged ETFs in terms of percentage gains were equity-based energy funds.
An interesting element to last week's rally was the leadership from "damaged goods" ETFs. For example, the Market Vectors Indonesia ETF (NYSE:IDX) and the iShares MSCI Indonesia ETF (NYSE:EIDO) climbed an average of 22.5 percent and even those gains are still down about 20 percent apiece year-to-date.
Several weeks ago, Benzinga noted that fixed income ETFs were particularly popular in the first half of September. That theme is continuing again this month as all four of the top asset-gathering ETFs this month are bond funds and three of those for are corporate bond funds, led by the SPDR Barclays High-Yield Bond ETF (NYSE:JNK), the second-largest junk bond ETF.
Another broad market ETF, U.S. equity fund to consider in the week ahead is the SPDR Dow JonesIndustrial Average ETF (NYSE:DIA) as 14.3 percent of that fund's weight delivers earnings.
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