ETF Update: Spain, Sweden Withstand Market Volatility; Mixed Financials Results; Rocky Market Hits Europe; Cisco Earnings Boosts XLK

Topics covered in this ETF Update: Spain and Sweden Withstand Market Volatility; Mixed Financials Results; Rocky Market Hits Europe; Cisco Earnings Boosts XLK.

Spain and Sweden Withstand Market Volatility
As the market rides the waves, a few ETFs stand out against the rest. One such ETF is the iShares MSCI Spain Index (EWP). It's up 13.6% year-to-date and is above its trend line. One of the reasons for EWP's success comes from its neighbors' prosperity. Also, according to the Bank of Spain, the country's GDP grew 4% in the second quarter.

Some of the factors in the second-quarter rise include a smaller trade deficit, a rapid slowdown in the growth of housing prices and a 5% increase in construction investments, the Associated Press reports. In addition, tax revenue appears to be growing above expectations despite tax cuts this year, which is likely to create a 2007 budget surplus that is higher than expected.

Besides Spain, iShares MSCI Sweden Index (EWD) is another country-based ETF that has withstood market volatility fairly well so far this year. It's up 10.7% year-to-date. It also holds well-known, worldwide companies such as Volvo (VOLV) and H&M (HMRZF.PK).

Demand and employment continue to increase in the Swedish economy, according to the National Institute of Economic Research for Sweden. Strong sectors for July included the service industry and construction. In addition, Swedish consumers showed confidence in the economy during July. Another reason EWD has done so well is because it's a fierce inflation fighter. However, inflation has increased recently over the last couple of months and is now approaching a rate of 3%.

EWD vs. EWP 1-yr chart:

Mixed Financials Results
Financial ETFs have been up this week possibly because of rumors that Fannie Mae and Freddie Mac might purchase more home mortgages. If the government-sponsored companies were permitted to do this, it would likely alleviate some of the housing market's tension, according to Randall W. Forsyth for Barron's.

However, financial ETFs have a long way to go as Financial Select Sector (XLF), for example, is down 4.5% year-to-date. iShares Dow Jones U.S. Financial Sector (IYF) and Regional Bank HOLDRs (RKH) echo XLF's performance.

Problems such as domestic tightening credit, employment verification and lax credit approvals continue to plague the financials sector. One website offers employment verification and pay stubs to the unemployed so that customers can qualify to buy a house, rent an apartment, etc, that Fred Fuld for Stockerblog found through a Financial Times article.

In addition to other financials woes, French bank BNP Paribas froze three security funds that invest in U.S. subprime mortgages because it was unable to properly value their assets, according to Tim Paradis for the Associated Press. Commercials advertising credit approval for consumers with poor or no credit seem to be proliferating and aren't helping the current situation as well. When will this mess end?

Rocky Market Hits Europe
The rocky road continues for the market and ETFs as most major indexes dropped sharply yesterday. The Dow Jones industrial average fell more than 380 points. It was the biggest drop and percentage loss for both the Dow and the S&P 500 since a market pullback on Feb. 27, according to this AP article.

The Dow is 5.2% below its record close, and the S&P 500 is riding its trend line, threatening to drop below it (it is currently 0.1% above the 200-day moving average). Factors that contributed to the giant plunge include:

As mentioned above, French bank BNP Paribas froze three security funds that invest in U.S. subprime mortgages because it was unable to properly value their assets.

The European Central Bank loaned more than $130 billion in overnight funds to banks at a low rate of 4%, which is its biggest injection ever. Although it was meant to calm investors, analysts saw the move as a confirmation of the credit market's problems.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking systems.

Retailers released July sales figures yesterday that were generally disappointing.

Cisco Earnings Boosts XLK
Technology ETFs and stocks have been solid performers this year. The information technology sector of the S&P 500 stock index was up 8.47% year-to-date as of July. During the first half of this year, the Technology Select Sector SPDR (XLK) had the second best return at 27.4%, reports David Hoffman for InvestmentNews.

Currently, XLK is up 12.5% year-to-date. This ETF holds a number of tech and telecom stocks in the S&P 500, such as Cisco Systems (CSCO), Apple (AAPL), Microsoft (MSFT) and AT&T (T). Wall Street was pleased with Cisco's earnings report yesterday, which helped push up XLK 1.6%. Cisco makes up 6.3% of XLK.

XLK 1-yr chart: