5 ETFs to own this week

It may be rough going early on, thanks to the debt ceiling debate, but earnings are likely to push stocks higher later in the week.

By Jamie Dlugosch Jul 25, 2011 9:43AM

A strong performance by the S&P 500 last week masked underlying difficulties for a majority of stocks. The large index gained more than 2% last week, but other sectors lagged. The biggest gainers were from companies that reported strong earnings reports.


As for sentiment, there is still much fear in the market. Recent moves have been nice, but we are far from a rip-roaring rally even though corporate profit growth is strong.


This week will be marked by the pointed debate in Washington regarding raising the debt ceiling. On Friday after the market closed we learned that the bickering sides were retreating to their respective corners. Stocks are likely to be lower initially, but a debt ceiling rally could be in store later in the week.


I would view any selling on this issue as an opportunity to buy. The debt ceiling will be raised eventually.


The SPDR S&P 500 (SPY) is the ETF to own this week based on a continuation of the strong earnings results coming from companies that make up the index.


We are still in the middle of earnings season. Most companies are reporting strong results that are beating analyst estimates. When news is released stocks have been rallying.

Last week it was Apple that led the way with a blow out rally. This week we get another round of reports from big names like Amazon, Baidu, and Buffalo Wild Wings. If the focus of investors is on earnings stocks are likely to do well this week irrespective of the debt ceiling debate.


Here are the five ETFs to own this week:


iShares Russell 2000 (IWM) – Small stocks lagged the market last week. The IWM was up only 1.5%. It is hard to say why the underperformance. One thing I do notice is that more and more stocks are priced on the high end of historical valuations. When that happens it is tougher to find gains even when earnings are strong. One week does not make a trend. Let’s see what happens this week before jumping to any conclusions.


iShares S&P North America Technology and Multimedia Fund (IGN) – Technology stocks got a boost thanks to a strong report from Apple. Given the huge beat by Apple I actually expected more. At the end of the week semiconductor stocks rallied significantly thanks to a good report from Advanced Micro Devices. Technology is still the place to be and the IGN is likely to do well this week as we get another batch of technology companies reporting profit results.


SPDR Dow Jones Industrial Average (DIA) – The Dow took a breather last week relatively speaking. The industrial index was up only 1.4%. That trailed the S&P by quite a bit. This week 3M reports results. A strong report there and the Dow will likely lead the way forward this week.


SPDR S&P Homebuilders (XHB) – Homebuilding stocks were the big loser last week on a relative basis. The XHB made only a fractional gain during a strong rally from the S&P 500. That under performance has plagued the sector for some time. I’ll stick with homebuilders one more week as we start to get earnings reports that could propel the group higher.


SPDR S&P 500 (SPY) – The S&P led the way last week and is likely to do the same this week. The biggest gains will come from those large companies reporting earnings results that beat expectations. We have another few weeks of earnings remaining thus strength here in the SPY is the likely outcome.


Our five picks here lagged the market last week, but maintain a very healthy lead for the year. The goal here is absolute returns and we are doing that swimmingly. Keep an equal weight in the five picks above to continue that performance.


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