ETFs Endure Another Volatile Week

Market Wrap-Up

Investors endured another up-and-down week as the financial crisis dominated the headlines. The Dow Jones Industrial Average posted three straight sessions of losses before a 552-point rally Thursday. And the rollercoaster picked up speed from there. The Dow was down as much as 360 points shortly after noon, swung into positive territory heading into the final hour of trading, only to sink back to the lows before the closing bell sounded. The index ended Friday down 337 points to 8,497. That represented a 449-point decline for the week. 

One of the biggest revelations of the week came from Treasury Secretary Henry Paulson, who said the government bailout plan -- the so-called TARP -- will not buy distressed assets from financial services companies as previously promised. Paulson's statement was controversial, to say the least. He went on CNBC late Friday to assure traders that stability was returning to the markets. Traders also heard from President Bush this week as he defended capitalism ahead of the weekend G20 summit. The market also digested a $600 billion bailout package in China. Congress held hearings Thursday that featured testimony by the hedge fund world's biggest luminaries. Lawmakers were also considering aid for the nation's ailing automobile makers. The FDIC announced a $24 billion plan to help out as many as 1.5 million homeowners avoid foreclosure and Federal Reserve chairman Ben Bernanke said he isn't ruling out another interest rate cut. 

The week also revealed that retail sales had pulled back 2.8% in October, a sizable cutback that hurt all sorts of retailers. Traders got lukewarm or disappointing quarterly news from companies like Circuit City (CC), TJX Companies (TJX), Starbucks (SBUX), Macy's (M) and Best Buy (BBY). Only Wal-Mart (WMT) seemed to have done OK during the last 90 days, although it tempered its guidance. Other industries also weighed heavily on trading. AIG (AIG) announced its bailout package would probably hit $150 billion. General Motors (GM) shares continued to skid as several analysts warned they may become next-to-worthless in any bailout.

Economic news remained grim as unemployment and jobless claims continued to increase. Home prices fell once again. Crude inventories were relatively unchanged from the previous week, but oil and gasoline prices continued to slide. Oil closed the week at $56 per barrel.

Winners

Direxion came out with leverage and short ETFs last week that try to post three times the returns of their underlying benchmarks. It didn't take long for investors -- actually we should probably say hedge funds -- to warm up to these funds. The Direxion Financial Bear 3X Shares (FAZ) gained 25.5% this week on relatively heavy trading volume.

Losers

Many industry watchers had been calling for the bubble to burst in the red hot alternative energy sector. And they seem to have been proven right. As oil has come down so, too, have the calls to jump into solar energy ETFs. Couple that with some spotty quarterly numbers, possible cutbacks in subsidies in Europe and good old profit taking and you can see why it's been a tough time for these ETFs. Indeed, the Claymore/MAC Global Solar Energy (TAN) and Market Vectors Solar Energy (KWT) ETFs lost 26.9% and 22.8% this week.

This Week's Industry Headlines

Data Point
State Street released its monthly snapshot of the ETF industry. As of Oct. 31, there was 701 ETFs holding $482.9 billion. Assets fell 16.7% during the month as the stock market crashed.

Barclays says ETF volume has hit historic levels during a volatile 2008. According to company, ETFs accounted for 40% of all equity trading volume in the U.S. in October, up from 35% in September and 28% in August. Eight out of the ten most actively traded securities in the U.S. are ETFs. 

Launching Pad
Rydex launched CurrencyShares Russian Ruble Trust. The fund tracks the daily movements of ruble. This ETF joins a lineup that includes others based on the Euro, the British Pound, the Japanese Yen and the Swiss Franc.

RevenueShares, a company that specializes in creating ETFs that track indexes based on revenues, launched the RevenueShares Financials Sector fund. The ETF will weight by revenue the components of the S&P 500 financials index.

Next Week's Notebook

Earnings & Conference Calls

Monday
Jamba Juice, Lowe's, Target

Tuesday
Home Depot, Jack in the Box, La-Z-Boy, Medtronic, Pacific Sunwear, Phillips-Van Heusen, Saks

Wednesday
BJ's Wholesale Club, Dress Barn, Gymboree, Hot Topic, Intuit, LDK Solar, Men's Wearhouse, PetSmart, Ross Stores, Tween Brands

Thursday
Autodesk, Barnes & Noble, Bon-Ton Stores, Casual Male, Cost Plus, Dell, Dick's Sporting Goods, Goot Locker, Gamestop, Gap, Patterson Dental, Suntech Power

Friday
AnnTaylor, H.J. Heinz, J.M. Smucker

Economic Data

Monday
8:30a.m. Nov. N.Y. Fed Manufacturing Index
9:15a.m. Sept. Industrial Production
9:15a.m. Sept. Capacity Utilization

Tuesday
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

Wednesday
8:30a.m. Sept. Consumer Price Index
8:30a.m. Sept. CPI, Ex-Food & Energy
8:30a.m. Sept. Housing Starts
10:35a.m. Nov. 14 U.S. Energy Dept. Oil Inventories
11:00a.m. Nov. 14 API Oil Industry Report
2:00p.m. Oct. 28 FOMC Minutes

Thursday
8:30a.m. Initial Jobless Claims
10:00a.m. Oct. Conference Board Leading Indicators
10:00a.m. Nov. Philadelphia Fed Business Index
10:00a.m. DJ-BTMU Business Barometer

Friday
No major releases scheduled.

Quick Take

A look at how the industry's most popular ETFs did on Friday.