Citi Weighs Heavily on Financial ETFs

Market Wrap-Up

Citigroup (C) announced a massive headcount reduction that could put more than 50,000 of its employees in the unemployment line over the coming quarters. The company also announced plans to cut costs by 20% as the financial-services giant tries to get back on track during the credit crisis. That large number stoked concerns about rising unemployment. Indeed, stocks initially sagged in early trading Monday before coming back to even territory in the afternoon and then selling off once again at the close.

But traders remained nervous throughout the day. Congress contemplated legislation to bailout the ailing auto industry. The Federal Reserve announced its Empire State Manufacturing Survey hit a reading of -25.4, a record low. There was also another round of dismal news from the retail sector. Target (TGT) said its third-quarter earnings dipped to 49 cents per share from 56 cents a share during the year-ago period. Financials took a beating, especially insurance firms. Hartford Financial Services (HIG) and Lincoln Financial (LNC) announced they were applying to become savings and loans. Traders didn't like that news: Both stocks fell during Monday's session.

As the third-quarter earnings season comes to a close, Bloomberg is reporting a 17% decline in the earnings of S&P 500 companies that have reported so far.

Over the weekend the G-20 met and agreed to try to avoid another financial calamity (and not much else). The Bush administration said it would hold off asking for another $350 billion under the TARP program and instead leave the decision for President-elect Obama. The price of a barrel of oil fell over global demand fears. Japan appeared to be entering a recession and one of China's biggest oil companies said demand had decreased sharply. The drop may have also been, in part, due to a large hijacked tanker off the African coast. Oil finished the session down $2 to $55 a barrel.

The Dow Jones Industrial Average experienced another up and down day. After getting back to even territory -- and heading into the black for some time -- the index slipped lower, closing down 223 points to 8,273, as week earnings continued to make traders nervous.

Winners

Investors played the financials trade during Monday's session. Bears went short and did well. The ProShares UltraShort Financials ETF (SKF) increased 7%.

Losers

There was a losing end of this trade. The Citi layoffs and the news coming out of Hartford and Lincoln Financial caused the ProShares Ultra Financials (UYG), an ETF that bets on that sector going up, to head south 7.3% Monday.

Monday's Industry Headlines

Data Point
From the folks at Index Universe comes a story about how Financial Research Corporation is estimating exchange traded funds will account for a larger share of the fund world than index offerings by 2012.

Next Week's Notebook

Earnings & Conference Calls
Home Depot, Jack in the Box, La-Z-Boy, Medtronic, Pacific Sunwear, Phillips-Van Heusen, Saks

Economic Data
7:45a.m. ICSC Chain Store Sales Index
8:30a.m. Oct. Producer Price Index
8:30a.m. Oct. PPI, Ex-Food & Energy
8:55a.m. Redbook Retail Sales Index
9:00a.m. Sept. Treasury International Capital Flows
1:00p.m. Nov. NAHB Housing Market Index

How the industry's most popular ETFs did on Monday: