Alcoa Kicks Off Earnings Season For Dow, Sector ETFs

by: Tom Lydon

U.S. stock ETFs were set to open higher Wednesday following a five-day losing streak on weak U.S. jobs data and lingering European debt concerns. Alcoa (AA) kicked off the earnings season for Dow components, while sector ETFs could see action as companies announce first-quarter results.

SPDR Dow Jones Industrial Average (DIA) is down 3.5% the past five days.

The economy may be past its breakout stage of fast-paced earnings growth, and investors are taking a more reserved approach going into new earnings season. Nevertheless, ETF investors may utilize sector funds to capture earnings plays.

Alcoa shares were up 5% in Wednesday's pre-market trading on better-than-expected earnings. The aluminum producer is widely watched as a barometer for economic activity, writes Don Dion for TheStreet.

If you feel more comfortable with a broad play on the overall sector, the SPDR S&P Metals & Mining ETF (XME) provides a diversified exposure to mining stocks, with a 3% allocation to Alcoa, he notes.

Alcoa has a smaller position in the Dow ETF because the venerable index weights companies by share price. Alcoa is the second-smallest holding at only 0.6% of the portfolio after Bank of America (BAC).

Google (GOOG) is also releasing its earnings this week. The First Trust Dow Jones Internet Index Fund (FDN) tracks large internet-based companies, including a 10% allocation to Google, according to Dion.

Additionally, financial giants, JPMorgan (JPM) and Wells Fargo (WFC), will announce results this week. Financial Select Sector SPDR (XLF) weights almost 20% of its holdings to the two banks. However, if this seems too top-heavy, the SPDR S&P Bank ETF (KBE) follows an equal-weight methodology, with each of its holdings accounting for about 3% of the overall weighting.

Looking ahead, China economic slowdowns, troubles in peripheral eurozone states like Spain and even lower U.S. jobs data are tempering the growth outlook.

Max Chen contributed to this article.

Disclosure: I am long AAPL, GOOG. Tom Lydon's clients own AAPL and GOOG.