A Look Ahead: This Week's ETFs to Watch
What a relief! U.S. lawmakers finally reached a compromise to avert the fiscal cliff last week and the result for stocks in a holiday-shortened week was palpable. In just 3.5 trading days, the S&P 500 notched its best weekly performance in 13 months.
On the week, the S&P 500 surged 4.6 percent while the Dow Jones Industrial Average added 3.8 percent. The S&P 500 added 1.7 percent on New Years Eve and 2.5 percent on January 2.
So with the fiscal cliff in the rear view mirror, the market can turn its attention to more pressing issues. Those include the start of fourth-quarter earnings season, which kicks off in earnest Tuesday with Alcoa's (NYSE: AA) after-the-bell report, and the looming debt ceiling debate.
Headline and stock-specific risk promises to be bountiful for the duration of January and with that in mind, the following ETFs should offer valid trading opportunities in the week ahead.
Vanguard Financials ETF (NYSE: VFH) In case you did not get the memo, bank stocks, one of 2012's leadership groups, are trying to retain that role in 2013. Last week, Dow components Bank of America (NYSE: BAC) and J.P. Morgan Chase added 6.6 percent and 4.9 percent, respectively. The bank stock rally was enough to lift VFH, which recently saw its expense ratio reduced, by 4.5 percent last week.
Bank earnings do not kick into high gear until next week, but Wells Fargo (NYSE: WFC), VFH's largest holding with an allocation of 7.1 percent, is scheduled to deliver results this Friday.
Guggenheim Solar ETF (NYSE: TAN) Solar equities and ETFs still have their share of detractors, but that has not seemed to bother the Guggenheim Solar ETF in recent weeks. TAN has surged 40 percent in the past month, buoyed by an array of helpful ranging from China's efforts to support its ailing solar firms to Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) buying two unfinished projects from SunPower (NASDAQ: SPWR).
Last week alone, TAN climbed over 19 percent, leading investors to ponder several scenarios regarding the solar sector. First, and most obvious, is this is a case of too much too soon? Second, how much of the recent rally in solar stocks and ETFs is attributable to short-covering? Finally, have the solar sector's fundamental issues dramatically changed for the better simply because the calendar changed to 2013 from 2012?
iShares High Dividend Equity Fund (NYSE: HDV) With the fiscal cliff averted and the tax rate on dividends set to rise only on those U.S. households with $450,000 or more in annual income, 2013 has the potential to be another great for year income investors in terms of dividend increases. Importantly, the first quarter is when a plethora of blue chip companies announced increased payouts.
That does increase the allure of the iShares High Dividend Equity Fund, which is home to such venerable dividend payers such as AT&T (NYSE: T), Johnson & Johnson (NYSE: JNJ) and Philip Morris (NYSE: PM). The fiscal cliff debate has weighed on HDV, which is up just half a percent in the past month. However, the fund is found flirting with its all-time highs. Should the market environment turn turbulent, HDV's allure increases because the fund has a beta of just 0.35 against the S&P 500, according to iShares data.
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