Although this earnings season is on track to produce an all-time quarterly profit record, stock prices have been pretty mixed so far. While some companies have soared based on their profit reports, others have seen severe weakness, or have faced turbulence thanks to sluggish guidance.
In particular, market giants such as Coca-Cola (KO) and Wal-Mart (WMT) both had an earnings season to forget, as both saw their share prices slump following their reports. Retail and consumer names were especially hard hit, though some others also faced an uphill battle this earnings season (see 7 ETFs to Buy in 2014).
On the flipside, there were plenty of winners this earnings season which saw their share prices surge following their profit reports. Among the big winners were Tesla Motors (TSLA) and those in the online travel industry like Priceline.com (PCLN) or Expedia (EXPE).
Now, the heart of earnings season is pretty much over, though there are still plenty of firms reporting this week. These latecomers to earnings season still could move markets, or at least greatly impact several sector ETFs.
Below, we highlight three sector ETFs that could be in for a volatile trading week thanks to earnings. Any of these could be interesting picks for traders seeking a big move, or for investors looking to see how the broader space reacts to some more key earnings data:
Guggenheim Solar ETF (TAN - ETF report)
Despite some concerns in December, the solar industry has started 2014 white hot. The top ETF in the space, TAN, has easily crushed the market in the YTD time frame, and has added nearly 15% since the start of the year. However, the real test for the space will come this week as a few key companies are reporting (read Can Solar ETFs Continue Their Rally in 2014?).
Both SolarCity (SCTY - Snapshot Report) and First Solar (FSLR) have earnings reports this week, while both have positive earnings ESPs, suggesting that a beat is possible. Additionally, SCTY and FSLR each have Zacks Ranks #2 (Buy), further underscoring the positive trend for this duo heading into earnings.
This is very important for TAN because SCTY and FSLR are actually two of the top four components in the fund. The duo combines to make up nearly 12% of the assets, and given the important position of both of these firms in the industry their quarterly updates could go a long way in determining the outlook for this surging industry.
Market Vectors Retail ETF (RTH - ETF report)
Thanks to the cold weather, higher heating bills, and sluggish job growth, the retail sector hasn’t exactly been doing well lately. The space could really use a boost, and especially so after a weak showing from behemoth Wal-Mart (see Consumer ETFs in Focus on Wal-Mart Earnings).
Fortunately, there will be plenty of catalysts this week in the form of earnings, including an important trio of Home Depot (HD - Analyst Report), Lowe’s (LOW), and Target (TGT). However, the retail-discount industry, as well as the building products retail industry, are poorly ranked at this time and could see weakness at earnings season.
This is vital for RTH, as the three aforementioned companies all find their way into the top 12 holdings for the ETF. And once they report, it will likely signal how the middle-class consumer, as well as the home improvement segments of the market are holding up, two key areas of the broader consumer discretionary sector that could either drive RTH higher, or send the fund lower again if there are a string of disappointments.
iShares Mortgage Real Estate Capped ETF (REM - ETF report)
Worries over the taper crushed the mortgage REIT industry, sending shares of companies in this space plunging. However, as the taper has begun and rates haven’t moved higher (and have actually gone lower), many mortgage REIT backs have come back a bit (see 3 Sector ETFs Braving the Market Slump).
This has given new hope to the space, though many will be anxious to see what Annaly Capital Management (NLY - Analyst Report) has to say on the subject when the firm reports earnings on Tuesday. The stock currently has a Zacks Rank #4 (Sell), so estimates haven’t exactly been favorable as of late. Yet after AGNC produced a solid showing earlier in the month, expectations have to be a little higher for NLY now.
NLY is actually the top holding in REM, edging out AGNC for the number one spot. Annaly makes up over 14% of the assets too, so its earnings release and guidance could go a great distance in driving REM’s near term performance, or even paving the direction of the mortgage REIT space heading into Q2.
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Author is long SCTY