Market Overview

A Look Ahead: This Week's ETFs to Watch

A Look Ahead: This Week's ETFs to Watch

U.S. stocks are coming off their sixth consecutive week of higher finishes as earnings news has been supportive of continued upside. About 75 percent of the 341 S&P 500 companies which reported fourth-quarter results have beaten estimates, according to Bloomberg data.

Earnings ebullience has been enough to send the S&P 500 to a new five-year high and with a week short on economic catalysts, it will be up to some of the more noteworthy remaining earnings reports to drive further price appreciation in stocks. That said, Tuesday's State of the Union address cannot be overlooked as a potential market-mover.

Market participants will be eagerly awaiting comments from President Obama regarding possible budget cuts, also known as sequestration, that could result in $85 billion in pared spending to defense and domestic programs. With those factors in mind, the following ETFs will be worth keeping an eye on this week.

iShares Dow Jones US Aerospace & Defense Index Fund (NYSE: ITA) A four percent year-to-date gain for the iShares Dow Jones US Aerospace & Defense Index Fund may not sound like much to marvel at, but this is one ETF that deserves some credit for crawling higher. The fund was one of the ETFs that was squarely in the cross-hairs of the fiscal cliff debate and then it had to contend with the Boeing (NYSE: BA) Dreamliner fiasco, a factor that cannot be overlooked because the Dow component is ITA's second-largest holding at a weight of 7.72 percent.

Once again, ITA and other aerospace ETFs find themselves at the center of political hand-wringing. Negative headlines pertaining to the sequestration issue will undoubtedly hit some ITA holdings, putting the ETF's recent bullishness in danger.

One anecdote to consider: The F-22 Raptor fighter plane, which cost over $400 million a piece, is believed to be a prime candidate to be scuttled under a sequestration scenario. Boeing and Lockheed Martin (NYSE: LMT) partner on the Raptor and those stocks combine for over 13 percent of ITA's weight.

SPDR S&P Retail ETF (NYSE: XRT) Consumer discretionary and select retail names have impressed this earnings season and that has drive an impressive run for the SPDR S&P Retail ETF. XRT has jumped over nine percent year-to-date and is now found bumping against some stiff resistance at $68.

XRT's ability to break that resistance and start a new leg higher will be tested this week with the release of retail sales for January and consumer sentiment for early February. Lower pay checks and higher gas prices, among other factors, have some analysts expecting essentially no growth in retail sales.

It is already known that the National Retail Federation sees sales growth below the 10-year average this year, but how much of that and the possibly slack January data are baked into XRT remains to be seen. Above $68, XRT becomes a tricky short, that much is clear.

Consumer Staples Select Sector SPDR (NYSE: XLP) Another ETF that has been on a seemingly unstoppable run, the Consumer Staples Select Sector SPDR is up 7.4 percent year-to-date as investors continue to put cash to work with stodgy staples names. For the week ending February 8, XLP hauled in almost $92 million in fresh investments.

Catalysts are in place to move the ETF this week as Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Kraft (NASDAQ: KRF), Lorillard (NYSE: LO) and Reynolds American (NYSE: RAI) all deliver earnings reports. All five are XLP constituents. Alone, Coke and Pepsi combine for nearly 15 percent of XLP's weight.

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Posted-In: Earnings Long Ideas News Sector ETFs Broad U.S. Equity ETFs Guidance Short Ideas Specialty ETFs Best of Benzinga


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