The financial markets have been volatile over the past two weeks on heightened worries over the partisan budget battle in Washington D.C. And with the debt ceiling deadline fast approaching, the issue is becoming more than a mere sideshow (read: 3 Tech ETFs Crushed as Washington D.C. Crisis Drags On).
However, some hopes were felt in the market on Monday with the Democrats and Republicans seemingly getting close to a deal to reopen the government and raise the ceiling. However, on Tuesday, this appeared to be in jeopardy, with the sides still appearing to be far apart.
This tension, along with earnings, has put the SPDR Dow Jones Industrial Average ETF (DIA - ETF report) in focus.
The ETF tracks the performance of the Dow Jones Industrial Average, which includes a small basket of 30 U.S. stocks of blue chip companies that are considered leaders in their respective industries. For over 100 years, this has been serving as the primary benchmark of American stock performance.
Further, 9 out of the 30 blue chip firms from different sectors are expected to announce their quarterly results this week. Intel (INTC - Analyst Report) , Johnson & Johnson (JNJ - Analyst Report) and Coca Cola (KO - Analyst Report) released their results on October 15 while American Express (AXP) and International Business Machines (IBM) will report on October 17.
Other companies like Goldman (GS), UnitedHealth Group (UNH) and Verizon Communications (VZ) are scheduled to report on October 17 while General Electric (GE) has its earnings release slated for October 18.
Quick Look at Q3 Earnings Trends
The Q3 earnings season has already set in, with estimates for earnings growth falling sharply to the current 0.5% from 1.1% last week and 5.1% in early July. This is because most of the companies are guiding lower, prompting analysts to cut their estimates for the to-be reported quarter.
According to the Zacks Estimate, all 16 sectors suffered negative estimate revisions for the third quarter, with Basic Materials, Retail, Energy and Technology seeing the worst fall. Aerospace and Consumer Discretionary saw relatively better revisions, experiencing the least number of negative revisions (see: all the ETFs Categories here).
DIA in Focus
This is one of the largest and most popular ETFs in the large cap space with AUM of over $11.3 billion. It trades in heavy volumes of more than 6.7 million shares, suggesting no extra cost in the form of a wide/bid ask spread beyond the expense ratio of only 0.17%.
The fund is widely spread across nine sectors with each taking up less than 20% share in the basket. Information technology (19.34%), industrials (19.20%), financials (15.69%), consumer discretionary (13.09%) and healthcare (10.10%) are the top five sectors (read: Top Ranked Tech ETF for Q3 Earnings Season).
From a security look, the ETF is moderately concentrated on the top 10 holdings with nearly 54% of total assets. Visa (V - Analyst Report) , IBM and GS occupy the top three positions in the basket with a combined 22.68% share.
This is the first time that Visa, Goldman and Nike (NKE - Analyst Report) are the components in DIA at earnings season. Last month, Dow Jones Industrial Average had replaced Alcoa (AA), Bank of America (BAC) and Hewlett-Packard (HPQ) with Visa, Goldman and Nike, making a three for three swap in its 30-stock portfolio (read: Major Shakeup Coming to DJIA, Dow ETF).
The product added over 1% so far this month and is up 18.6% in the year-to-date time frame. The ETF currently has a Zacks ETF Rank of 2 or ‘Buy’ rating with a ‘Medium’ risk outlook, suggesting that it would continue to outperform over the next one-year period.
With the earnings of most blue chip companies scheduled this week and rising hopes of a temporary budget deal, investors should closely monitor the movement of the Dow ETF and grab any opportunity from a surge in any of the 30 key stocks in this benchmark.
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