Although September has historically been one of the weakest months of the year for U.S. equities, markets this aside trend in recent weeks and have kept up an impressive rally. The S&P 500 got off to a good start in Monday trading only to stay rangebound over the next day before investors digested the Federal Reserve's policy meeting. Chairman Ben S. Bernanke gave a temporary boost to markets in late Tuesday trading when he stated that the Fed was prepared to step in to help boost markets if the economy and unemployment situations do not improve. Many took this a sign that the economy was likely to struggle for the foreseeable future, which helped fuel a modest selloff Thursday. Markets then soared by more than 2% on Friday to finish the week ahead by a similar amount. Weakness popped up in the financial sector, while a broad swath of the technology and consumer services sectors powered last week's gains for the stock market, setting the stage for the final week of the month.
Here in the last week of September, the number of market-moving data points has slowed to a trickle; no major central banks are meeting this week, and virtually no companies of importance have earnings releases scheduled. That means investors may look to the few events on tap this week for direction, and a handful of data releases and ongoing dramas could determine how red-hot equities close out the month. Below, we profile three ETFs that could be active this week:
WisdomTree Dreyfus Chinese Yuan Fund
Why CYB will be in focus:
Last week, President Barack Obama met with Chinese Premier Wen Jiabao to pressure the Chinese to dramatically raise the value of their currency and boost the competitiveness of American exports. The Chinese have pushed back on this claim, though, saying that if the yuan were to rise too quickly it could push hundreds of thousands of Chinese businesses into bankruptcy and drag down the country's impressive growth rate at a frightening pace. Despite these protests, a bill has been introduced into Congress to impose duties on countries whose currencies are undervalued.
The bill is expected to hit the House floor soon, having passed over the initial hurdle of the House Ways and Means Committee on Friday. Due to these escalating tensions and the approaching midterm elections, look for the rhetoric to ramp up in the coming days, which could force the Chinese to throw the United States a small rise in the value of the yuan. If this happens, look for CYB to jump higher as well, and look for the currency to remain in focus as the bill makes its way through Congress.
Merrill Lynch Retail HOLDR
Why RTH will be in focus:
Several key developments this week could affect the consumer sector and either continue or reverse the recent upward trend of the industry. A variety of American economic data points, including the September Consumer Confidence report, Q2 GDP growth and the University of Michigan consumer confidence survey, are due out this week. All three are expected to decline or stay flat, suggesting that the American consumer is less likely to spend.
Furthermore, a major American retailer,
, is due to give its earnings report today, which could affect the markets in a week largely absent of company earnings. The company is expected to post earnings of 44 cents a share, identical to the year-ago quarter. This comes on the back of a disappointing report from rival
, which posted a net loss of 23 cents a share compared with estimates of losses of 11 cents. Should Walgreens follow in the footsteps of Rite Aid and post a weak quarter, look for RTH and the entire consumer sector to be in for a rough week.
iShares MSCI Brazil Index Fund
Why EWZ will be in focus:
Arguably the most important company to the Brazilian economy is the partially state-owned oil giant Petrobras, which happens to be the single largest holding for EWZ. Petrobras has been in focus as of late due to a massive share sale to allow the company to raise capital required to start developing vast offshore oil and gas reserves. The sale reportedly totaled more than $70 billion, and the company is now the fourth-biggest corporation on the planet by market capitalization. Due to this, any developments out of the giant are likely to greatly affect EWZ as a whole as the company attempts to digest this new-found cash hoard and develop its offshore oil fields.
This massive influx of foreign capital has also caused the value of the real to spike recently, so all eyes will be on the country to see if it moves to weaken the Brazilian currency on the open market. While the bank will likely wait to see if cash begins to flow out of the largest economy in South America now that the share sale is over, any further spikes are likely to be met by high levels of Brazilian real selling by the bank. Many will be looking for this to help exporters out and make Brazilian goods more competitive in the global economy.
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