The spike in bond prices came even as the Treasury announced plans to auction a record $118 billion in new notes next week – an auction schedule of $44 billion 2-year notes on Monday, $42 billion 5-year notes Tuesday, and $32 billion 7-year notes on Wednesday.

The Dow, which had plunged as much as 170 points during the session, ended down 93.87 points, or 0.9%, to 10,332.44.  The broader Standard & Poor's 500 index fell 14.90 points, or 1.3%, to 1,094.90, while the tech-heavy Nasdaq composite index dropped 36.32 points, or 1.7%, to 2,156.82.  Wall Street’s fear gauge, the CBOE Vix, jumped more than 4%.  Crude prices dropped $1.93 to $77.46. Gold prices rose to their fifth straight record close, up 70 cents to $1141.90.

As glimmers of a full-blown economic recovery fade, investors have increasingly become intolerant, locking in profits at every opportunity.  Also, a lack of conviction on part of the market to push beyond the current rally has been a dampener and concerns of an asset bubble build-up due to accommodative monetary policies have diminished risk appetites, sending daily average volume to levels of only about 1 billion.   

Nevertheless, to show not all is bad, the OECD raised its growth estimates for its 30-country members to 1.9% in 2010 from June's estimate of a 0.7% growth, and to a 2.5% GDP expansion in 2011.

Tech shares, already up 54.3% year-to-date, fell 1.7% Thursday, after Merrill's analyst slashed 2010 global growth targets, and downgraded ten companies in the semiconductor sector.  Intel (NASDAQ:INTC) shares fell 4.1%, and Texas Instruments (NYSE:TXN) retreated 3.4% after the downgrade.  Dell (NASDAQ:DELL) shares plunged 6.1% in premarket trading, after the company reported earnings that missed analysts’ projections.

Among the S&P 500 industry groups, energy producers, off 2.1%, were the biggest decliners.  ConocoPhillips (NYSE:COP) fell 1.9% and Chevron Corp. (NYSE:CVX) dropped 2% as crude prices fell for the first time in four days. Schlumberger Ltd. (NYSE:SLB) shares fell 3.3%.

Chicago, IL – November 16, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JC Penney Company Inc. (JCP), Toyota (TM), Honda (HMC), EnCana (ECA) and Chesapeake (CHK).

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Here are highlights from Friday’s Analyst Blog:

JC Penney Beats on Low Earnings

JC Penney Company Inc. (JCP), a leading retailer of apparel and footwear, accessories, fashion jewelry, beauty products and home furnishings, recently reported third-quarter 2009 results.

The quarterly earnings of 11 cents a share tumbled 80% from 55 cents posted in the prior-year quarter, weighed down by qualified pension plan expense. Earnings missed the Zacks Consensus Estimate by a penny.

The retailer, however, mentioned that earnings outshined the company’s initial guidance range of a loss of 5 cents to profit of 5 cents a share on the heels of effective inventory management and lowered unprofitable discounting. Consequently, gross profit rose 1.9% year-on-year to $1,696 million.

On stronger-than-expected results, JC Penney raised its fiscal year 2009 earnings outlook. Management now expects earnings in the range of 93 cents to $1.08 per share, as against 75 cents to 90 cents previously anticipated. For the fourth-quarter 2009, earnings are expected between 70 cents and 85 cents a share.

Imports Surge in September

So what was driving the increase in the deficit? Part of it was that we imported more cars from the Toyotas (TM) and Hondas (HMC) of the world as dealers restocked after inventories were depleted due to Cash for Clunkers. However, for the month, the biggest increase in our imports was Industrial Supplies and Materials -- a category that includes oil. Oil is a big part of the reason why our trade deficit has been so intractable, and the decline in the price of oil from a year ago is a big part of the reason that we have seen an improvement in the deficit over the last year.

We started making progress on reducing our non-oil deficit towards the end of 2005, and until the last few months, have continued to make steady progress. However, as the price of oil rose, that progress was offset by an ever increasing oil bill.

The net result was that from mid-2005 through the summer of 2008, our trade deficit remained stable at a horrendous level of roughly $60 billion a month. As a percentage of GDP, it exceeded 5.0% in every quarter from the second quarter of 2004 through the second quarter of 2008, and was extremely close to that level through the third quarter of 2008. It was not until oil prices collapsed in the fall of 2008 (along with everything else) that we saw a dramatic improvement in the trade deficit. Now with oil prices on the rebound, the deficit is deteriorating rapidly again.

There are really only two solutions to solving the chronic deficit problem. The first is that the dollar falls, thus making imports more expensive to U.S. consumers and businesses, and our exports much cheaper to foreign consumers and businesses. Yes, a weak dollar would not be fun next time you decide to vacation in Paris. It also would have the potential to be inflationary. However, right now, there are big deflationary pressures elsewhere in the economy (for example, housing prices and rents), so a little bit of inflation pressure coming from higher import prices is not a huge worry.

Creating export-led jobs is much more important right now. That would help increase Investment’s share of the economy, and decrease the Consumer’s share. Over time it is vitally important that we do this.

One big problem, though, as far as the weak dollar is concerned in curing this cancer -- it is not weak against every other currency. Most importantly, it has been absolutely stable against the Yuan, and our deficit with China was $22.1 billion in September, up from $20.1 billion in August.

As a percentage of the total, then, it was 60.5% in September -- down from 65.6% in August, but still a huge part of the problem. It is also an issue that a weak dollar does not address (unless China stops pegging to the dollar and moves to say pegging it to a basket of major currencies, I doubt they will go to a full free-float of the Yuan).

The second solution is that we get serious about creating domestic sources of energy to offset the need for us to import so much oil. Since we have already extracted most of our original endowment of oil, "drill baby drill" is looking less and less like the right answer.

However, we have lots and lots of natural gas (NG), thanks to the new Shale plays. Our ability to switch from oil to gas immediately is limited. Butiven the cost differential on a BTU basis right now, there is every incentive in the world already for businesses to make the switch if they can. Strictly on the basis of the amount of energy in them, a barrel of oil should be worth 6x as much as an MCF of natural gas.

Right now, oil is going for $75.86 a barrel while NG is going for $4.42, so if a business has the ability, they could be buying the equivalent of a barrel of oil for just $26.52. That is a big incentive to switch. Over the medium-to-long term, it is easier to make that change. Only relatively minor modifications are needed to switch, say, vehicles to natural gas -- it's not like it is some sort of cutting-edge technology.

However, it is not free, and we do not have the nationwide refilling infrastructure to do so. If this differential persists, I would expect more and more fleet-type vehicles (i.e. city buses and delivery trucks) to switch over. This would obviously be a good thing for the big producers of natural gas like EnCana (ECA) and Chesapeake (CHK).

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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The table at the right summarizes the percent change between January 6 and November 11 in the cash prices of 19 commodities reported in the Wall Street Journal (downloaded via Webstract). The average commodity in this list has appreciated 37% since the start of the year.

A recent paper by Ke Tang and Wei Xiong documents an increasing tendency for commodity prices to move together over the last few years. A decade ago, what happened to oil prices was largely unrelated to movements in most other commodity prices. The graphs below show how the correlations between oil prices and the prices of four representative commodities have increased significantly over time.

Correlation (using a rolling sample beginning one year before indicated date) between returns on oil and specified commodity. Source: Tang and Xiong (2009).

One explanation I often see in the popular press is that movements in commodity prices are driven by changes in the value of the dollar relative to other currencies. However, the magnitude of movements in commodity prices greatly exceeds the size of changes in the exchange rate. For example, the table above shows that since the start of this year oil prices have increased five times as much as the dollar price of a euro; see also Steve Gordon's graphs. While the depreciation of the dollar is part of the story, most of the explanation must be found elsewhere.

Another important factor is resurging real economic growth outside the United States, which produces pressures for both the dollar to depreciate and the real price of commodities to appreciate. According to this theory, the increasing correlations between commodity prices results from the fact that countries like China are so much more important for the world economy today than they were a decade ago.

A third explanation is that investors are making increasing use of commodities as an investment class. Although Treasury Inflation Protected Securities offer a hedge against an increase in the U.S. consumer price index, they don't offer protection for foreign investors against depreciation of the dollar. Insofar as increases in the prices of commodities like oil may depress real economic activity, holding commodities as an investment also offers useful diversification against risks to equities. Particularly when interest rates are low, there is an incentive to hoard physical commodities as an investment vehicle.

The paper by Tang and Xiong proposes that the increased use of commodities as a financial investment accounts for the increasing correlation among commodity price changes over time. In support of that claim, they note the growing popularity of investment strategies based on the Goldman Sachs Commodity Index or the Dow Jones Commodity Index. Tang and Xiong document that correlations among commodities included in the indexes have increased faster than those not included. For example, one of the regressions they estimate relates the return on commodity i to equity returns, bond yields, the value of the dollar, and oil prices, where the coefficients are allowed to grow with time at different rates before and after 2004, and with different trends on these coefficients estimated for commodities included in indexes as for those excluded. The figure below shows their estimated time path for the coefficient on oil prices comparing the indexed and non-indexed groups.

Coefficient relating return on average commodity to return on oil as a function of time for commodities included in the GS or DJ indexes (top curve) and those excluded (bottom curve). Source: Tang and Xiong (2009).

For any of the explanations in this third class, one of the important challenges is to reconcile the story of commodity speculation with supply and demand for the underlying physical commodity. If we propose that speculators have driven the price of the commodity up, the physical quantity demanded should decline as a result. In order to be sustained, a coherent speculation-based theory of commodity price appreciation requires increased physical storage of the commodity.

The solid black curve in the figure below plots the typical U.S. crude oil stocks (excluding those held in the Strategic Petroleum Reserve) for each week of the year, based on the average over 1990-2007. The red line gives the actual values for 2008, which were significantly below the historical average, particularly in the spring of 2008 when oil prices were rising so dramatically. Those below-normal inventories were one reason I focused on what was going on to the fundamentals of supply and demand in trying to understand the behavior of oil markets in the first half of 2008.

Weekly U.S. crude oil ending stocks, excluding SPR, in thousands of barrels, from EIA. Black line: average over 1990-2007. Red: 2008. Green: 2009.

On the other hand, inventories of crude oil this year, shown in green above, have been substantially above normal, meaning that in the absence of that oil going into storage, we would have expected to see lower oil prices than we currently have.

Moreover, much of the current stockpiling may be taking place outside the United States. For example, Yves Smith noted this story from Bloomberg last August:

Copper, nickel and other base metals stockpiled by speculative Chinese investors including pig farmers may be sold when "market sentiment turns," said Scotia Capital Inc.

A price surge and easy bank credit this year encouraged pig farmers, stock brokers and businessmen to buy copper and nickel for speculation, Liu Na, an analyst with Scotia Capital, wrote in a note dated Aug. 17, citing reports from the state-owned China Central Television....

"These stockpiles are in 'weak hands' as speculators have no real use for base metals," Liu wrote. "When the market sentiment turns, they are very likely to turn into quick sellers, especially when the bank's money is involved."

I also found this November 3 story from the Financial Times of interest:

Gold prices continued to rise on Wednesday extending the all-time highs which followed India's central bank bought 200 tonnes of the precious metal, swapping dollars for bullion as the country's finance minister warned the economies of the US and Europe had "collapsed".

India's decision to exchange $6.7bn for gold equivalent to 8 per cent of world annual mine production sent the strongest signal yet that Asian countries were moving away from the US currency.

Policy-makers in the Federal Reserve have traditionally thought of inflation as a broad movement in all wages and prices, which to some extent is under their control, and viewed changes in relative commodity prices as outside their control. I believe that this is not the correct understanding of the current situation. Concerns about inflation, particularly on the part of foreign dollar-holders, are likely to show up first in the relative prices of internationally traded commodities. Insofar as these relative price changes can be destabilizing in themselves, it cannot be wise for U.S. policy-makers to ignore them.

In a paper presented at the Brookings Institution last spring, I examined the post-sample forecasting performance of an equation originally published in 2003, which relates real GDP to past values of GDP and oil prices. I noted in April that if you had known in October 2007 the values of GDP through 2007:Q3 and what was about to happen to oil prices through 2008:Q2, you could have used that historical relation to predict the value of U.S. real GDP for 2008:Q3 with an accuracy better than 99.5%.

Solid line: 100 times the natural log of real GDP. Dotted line: dynamic forecast (1- to 9-quarters ahead) based on coefficients of univariate AR(4) estimated 1949:Q2 to 2001:Q3 and applied to GDP data through 2007:Q3. Dashed line: dynamic conditional forecast (1- to 9-quarters ahead) based on coefficients reported in equation (3.8) in Hamilton (2003) (which was estimated over 1949:Q2 to 2001:Q3) applied to GDP data through 2007:Q3 and conditioning on the ex-post realizations of the net oil price increase measure.

In the figure above I extend the earlier-reported forecast an additional four quarters and compare the projection with what actually happened to GDP through 2009:Q3. The dotted green line is a forecast formed in October 2007 of what would happen to U.S. GDP if you used nothing more than the values of GDP observed through 2007:Q3. Basically that forecast simply extrapolates the recent prior trend. The dashed red line is the forecast that uses GDP values only through 2007:Q3 but also uses knowledge of what was going to happen to oil prices between 2007:Q4 and 2009:Q3. If you treated oil prices as the only thing that matters for the economy, you would have predicted the bottom would be reached in 2009:Q1, flat growth between 2009:Q1 and 2009:Q2, and normal growth resuming in 2009:Q3. That's exactly the trajectory that GDP has taken so far, although the bottom in 2009:Q2 was 2-1/2 percent lower than would be predicted on the basis of oil prices alone.

I have no doubt that the problems with financial markets were a bigger factor than oil prices in the striking collapse in output in 2008:Q4 and 2009:Q1. The other approaches to measuring the contribution of oil to the downturn surveyed in my Brookings paper would estimate a smaller contribution of oil to the downturn than suggested by the figure above. On the other hand, all of the approaches surveyed in that paper suggest that oil made a material contribution to the initial downturn, and it seems hard to deny that that the severity of the financial crisis was exacerbated by the fact that the U.S. had spent three quarters in recession prior to the failure of Lehman in September 2008.

What do these estimates imply looking forward, with oil prices now back up to $80 a barrel? The relation used to produce the figure above assumes that there is a threshold effect before the next oil price shock would begin to do its damage. According to that relation, oil has to get back above $130 before it would matter again for GDP growth. On the other hand, the original research on which that relation is based acknowledged that there's really not a very compelling basis in the data for choosing among various plausible nonlinear possibilities. The other approaches surveyed in my Brookings study assume a simple linear relation, according to which the recent resurgence in oil prices would already begin to exert a drag on spending.

Another magnitude that I think is important to watch is the share of the budget of an average U.S. consumer that is devoted to energy purchases. This had fallen considerably in the 1990s, making it easier for many consumers to largely ignore modest energy price fluctuations. When this share rises above 6%, it seems to become a more significant factor. The consumer energy expenditure share peaked last summer at 6.8%, but collapsing energy prices subsequently brought it back down to 4.7%. The resurgence in oil prices this summer had pushed that share back up to 5.4% in September.

Energy expenditures as a fraction of consumer spending. Calculated as 100 times nominal monthly consumption expenditures on energy goods and services divided by total personal consumption expenditures. Data source: BEA Table 2.3.5U, "Personal Consumption Expenditures by Major Type of Product and Expenditure," obtained from Econstats. Dashed line is drawn at 6.0%.

And the price of oil is up another 15% since September.

Chicago, IL – November 6, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include B.P. Prudhoe Bay (BPT), Sabine Royalty Trust (SBR), Archer Daniels Midland (ADM), Hershey (HSY) and Del Monte (DLM).

Zacks Industry Rank Analysis is written by Dirk Van Dijk, CFA, Chief Equity Strategist for Zacks.com.
 
This week: Out-of-Step Industries

Sometimes the best investments come from a small group that seems to be bucking the trend of the much larger group that they are a part of. That appears to be the case for the Oil Royalty Trust group. There are eight names in this group, all of which sport Zacks #2 rankings. That puts them in a tie for 4th place among all industries tracked. Meanwhile, the Energy sector is well down the list overall sector rank list.

With royalty trusts, you get high dividends that will vary with the price of oil or natural gas. They don’t do a lot of reinvestment, just pump the oil or gas out of the ground, sell it and pass the proceeds along to the owners. Of course, eventually the wells run dry and with them, so does the stream of income. But they are a very direct play on the price of oil and gas, and you avoid the risk of dry holes.

They are among the best income-generating investments out there, though some of that income is really a return of principal as the wells run dry. Then again, the tax code recognizes that as well.

A few of the names in the group include B.P. Prudhoe Bay (BPT) and Sabine Royalty Trust (SBR), which might be good bets for people looking for high current income and who think that oil prices are likely to head higher as the dollar gets weaker.

At the other end of the spectrum, food stocks are generally very well regarded right now by the Zacks Rank, a big part of the reason that the Consumer Staples sector trails only the very small and analytically incoherent Conglomerates sector. However, there is one glaring exception to this otherwise tasty group, the Meat Processors. With an average rank of 3.67, the industry ranks 199 out of 206 industries tracked. Investors would be well served by looking elsewhere in the food industry right now. Some of the higher ranked alternatives in the food area would include Archer Daniels Midland (ADM), Hershey (HSY) and Del Monte (DLM).
 
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

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Chicago, IL – October 30, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Moody’s (MCO), Microsoft (MSFT), Fannie Mae (FNM), Freddie Mac (FRE) and ExxonMobil Corporation (XOM).

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Here are highlights from Thursday’s AnalystBlog:

GDP Notes – In Depth

With massive amounts of space sitting idle in offices and empty strip malls littering the landscape, look for new investment in commercial real estate to continue to decline in coming quarters. Moody’s (MCO) has estimated that the value of commercial real estate has plunged by 41% since the peak a little over a year ago, and that is hardly an inducement to build more. If a business needs the space, it's far cheaper to just buy some that already exists.

Spending on Equipment and Software (E&S), on the other hand, is starting to come back, if only feebly -- rising 1.1% after a 4.9% decline in the 2Q and a 36.4% plunge in the 1Q. Look for some stability in this line going forward as the new Microsoft (MSFT) operating system will probably generate a new PC cycle, but with capacity utilization still around 70% I would not expect a boom in orders for new factory equipment.

The real star of Fixed investment, though, came on the residential side, which rose 23.4%. This is the first increase in almost four years, and follows declines of 23.3% in the 2Q and 38.2% in the 1Q. The long string of declines had brought residential investment to a record low share of GDP. The extraordinary support of the housing sector by the government, including the first-time buyer tax credit -- the Fed buying up $1.25 Trillion of Fannie Mae (FNM) and Freddie Mac (FRE)-backed paper to artificially suppress mortgage rates, and the FHA acting like the old New Century Financial or Washington Mutual on their worst days -- have played a big role in the turnaround. I seriously question the sustainability of it after the support is removed, and I don’t think the support can continue indefinitely.

Exxon Misses, Production Up

ExxonMobil Corporation (XOM) reported third quarter 2009 earnings of 98 cents per share, below the Zacks Consensus Estimate of $1.04 and year-earlier earnings of $2.58.

Though the earnings came in below expectations, the company maintained its quarterly dividend of 42 cents per share and repurchased $4 billion worth of XOM common stock. With a sound cash position, solid credit profile and diversity of its asset base, both in terms of business mix as well as geographical footprint, Exxon remains better positioned than any of its peers.

The steep fall in oil prices and weak product margins caused a 65% drop in earnings from the year-earlier quarter to $4.7 billion. The production of oil and natural gas averaged 3.69 million oil-equivalent barrels per day, up approximately 3% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was up about 5%. Its refinery throughput averaged at 5.35 million barrels per day, flat from the year-earlier level.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Chicago, IL – October 28, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: BP plc (BP), ExxonMobil (XOM), Chevron (CVX), U.S. Steel Corp. (X) and POSCO (PKX).

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Here are highlights from Tuesday’s AnalystBlog:

BP Tops on Better Cost Control

BP plc (BP) reported its third quarter 2009 results of $1.71 per ADS (American Depositary Share), beating the Zacks Consensus Estimate of $1.14 on the back of stronger cost controls and increased upstream volumes. However, in comparison with the year-earlier results, earnings fell approximately 34% on lower oil prices.

BP’s strong performance sets the stage for earnings releases by ExxonMobil (XOM) and Chevron (CVX), which are scheduled to report their results on Thursday and Friday this week, respectively.

BP expects its capex budget to be $20 billion for the year. The company’s attractive dividend (currently yielding around 6%) remains unchanged from the year-ago level. We believe that BP’s dividend is safe with the recent uptrend in oil prices.

Net cash provided by operating activities for the quarter was $8.1 billion compared with $14.9 billion a year ago. Net debt at the end of the quarter was $26.3 billion, representing net debt-to-capitalization ratio of 21% (compared with 17% a year ago).

Steel Output Mounting

Key steel consuming industries such as auto, shipbuilding and construction have been experiencing weak demand in the last quarters, forcing global steel makers to lower production levels. U.S. Steel Corp. (X) had slashed production by almost 62% during the second quarter of 2009, while Korean steel maker POSCO (PKX) was forced to reduce production for the first time in its history. POSCO curtailed production by about 15% during the period.

However, with steel demand picking up in the last couple of months, United States Steel Corp. is restarting its blast furnace at its Hamilton, Ontario, plant after a nine-month shutdown. U.S. Steel had closed the Hamilton blast furnace in Nov 2008. It suspended the remaining operations at Hamilton and the Nanticoke facilities in March 2009 due to a drop in demand. Both the facilities were running at less than half their capacity.

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Weakness in share sent Treasury prices higher, with the 10-year closing up 13/32, to 102 11/32.  The yield fell to 3.34%, from 3.39% late Monday.  On Tuesday, the 30-stock Dow Jones industrial average fell 50.71 points, or 0.50%, to 10,041.48.  The broad Standard & Poor's 500-stock index retreated 6.85 points, or 0.62%, at 1,091.06 and the tech-heavy Nasdaq composite index lost 12.85 points, or 0.59%, to 2,163.47.  Market breadth was negative.  On the New York Stock Exchange, declining shares beat those that rose in price two to one on volume of 1.24 billion shares.

After the close yesterday, Yahoo Inc. (NASDAQ:YHOO) and SanDisk Corp. (NASDAQ:SNDK) reported strong quarterly numbers that were well ahead of Street expectations.  Caterpillar (NYSE:CAT) was the leading gainer among the Dow 30 stocks, rising 3.4% after it reported estimate topping numbers.  Apple (NASDAQ:AAPL) shares climbed 4.7%.

Military contractor Lockheed Martin (NYSE:LMT) fell nearly 6% after it announced weak 2010 outlook.  Chemical maker DuPont (NYSE:DD) and UnitedHealth Group Inc (NYSE:UNH) reported better-than-expected numbers, helped by cost-cutting measures.  However, DuPont (NYSE:DD) shares fell 2.2% after the company reported lower-than-expected revenue, even as earnings came in above estimates and the firm raised its full-year outlook.

Coca-Cola's (NYSE:KO) shares dropped 1.3% as it reported revenue below estimates, even as earnings were inline with expectations.  The company noted, "We expect the consumer to continue facing economic uncertainties into 2010 and for consumer sentiment to recover slowly." 

Interestingly, the market’s measure of volatility, the CBOE Vix, continued its southward move, falling 2.75% to 20.90. All ten S&P500 sectors ended in the red, led by declines in utilities (-1.2%), health care (-1.1%), and basic materials (-1.0%).  Technology stocks showed some strength and eased 0.03%.

Oil prices rose to an intraday high of $80.05 yesterday, the highest level in a year, before retreating a little and ending the session off 52 cents at $79.09.  The drop came amid concerns that the world's largest oil consumer might face a weaker-than-expected recovery. Moreover, OPEC Secretary General El-Badri noted that prices above $80 could hinder economic growth.  El-Badri said he does not expect prices above $100 in the near future due to what he called "no shortage of oil supply."

Today's markets will see earnings from big names including Boeing (NYSE:BA), Eli Lilly (NYSE:LLY), Freeport-McMoRan (NYSE: FCX), Morgan Stanley (NYSE:MS), US Bancorp (NYSE:USB) and Wells Fargo (NYSE:WFC) before the market opens.

In addition to this company-specific news, BEXP is also getting a hand from an improving outlook for oil stocks as oil prices have finally broken out of its trading range.

Brigham Exploration is an independent exploration, development and production company that utilizes advanced exploration, drilling and completion technologies to systematically explore for, develop and produce domestic onshore oil and natural gas reserves.

It's 1 of 3 companies from the Oil-U.S. Exploration & Production industry on today's Zacks #1 Rank List, which includes 215 stocks in total. The other 2 names are Linn Energy, LLC (LINE) and Plains Exploration & Production Company (PXP).

Earnings estimates have been trending higher for BEXP. Furthermore, volume today is nearly 4 million shares, compared to the daily average of about 2.6 million.

Thanks Brad

Today, Brigham Exploration announced that its Brad Olson 9-16 #1H well produced an initial rate of about 2112 barrels of oil equivalent per day during an early 24-hour flow back period. The well is located in Williams County, North Dakota in its Rough Rider project area.

The company has about a 33% working interest in the well and a 26% net revenue interest.

BEXP is heavily invested in the Bakken Shale, located in North Dakota, Montana and Canada. The area could hold north of 3.5 billion barrels.

"The Brad Olson 9-16 #1H is yet another data point that confirms our belief that our Rough Rider area should be considered core acreage within the Williston Basin," said Chairman/President/CEO Bud Brigham.

"Assuming three Bakken laterals per section, we could potentially drill over 240 net wells in our core Rough Rider area," continued Mr. Brigham.

Earnings Estimates

The Zacks consensus Estimate for this year calls for a loss of 2 cents per share, which has narrowed by a penny in the past week and by 3 cents in the past 2 months.

Analysts expect a sharp return to profitability next year, as the Zacks Consensus Estimate is pegged at a profit of 24 cents. That guidance has advanced 33.3% in 2 months and 14.3% in 30 days.

Second Quarter

For its second quarter, announced in early August, BEXP reported a loss per share of 5 cents, which was 2 cents narrower than the Zacks Consensus Estimate for a loss of 7 cents.

Zacks Investment Research

On Thursday, the European Central Bank and Bank of England left interest rates unchanged.  Sentiment also received a boost from domestic corporate borrowing, which rose for the eight straight week. 

The growing optimism surrounding consumer spending, which is crucial for an economic recovery, followed late Wednesday's good results from Alcoa.  The company surprised investors with its first profit in nine months, which the aluminum company attributed to cost-cutting and rising sales to automakers.  Analysts believe that it will take more than just cost cutting to impress investors this earnings season.  

Meanwhile, a better reading on the job market also fueled investors' optimism.  The Labor Department reported that new claims for jobless benefits fell to 521,000 last week from 554,000 during the previous week.  Claims came to the lowest level since early January.

The Dow rose 61.29, or 0.6%, to 9,786.87. The index ended off its highest level after demand at a government auction of 30-year bonds fell short of expectations.  The Standard & Poor's 500 index rose 7.90, or 0.8%, to 1,065.48, while the Nasdaq composite index rose 13.60, or 0.6%, to 2,123.93.  About three stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 5.2 billion shares, compared with 5.1 billion on Wednesday.  The market's measure of investor worries, the CBOE Vix, dropped 2% to 24.18.

The Dollar Index, which tracks the US currency against a basket of currencies, dropped 0.7% to 75.968 after reaching 75.767, its weakest level since August 2008.  This morning, however, the dollar rebounded from its lows after Fed Chairman Bernanke seemed to signal a shortening of its accommodative policy timeline.  Economists currently do not expect policy shifts before mid-2010; however, Bernanke advised the Fed is ready to tighten monetary policy once the economy improves.  At the same time, he cautioned that "accommodative policy will likely be warranted for an extended period."  Gold closed at a record $1,056.30 an ounce and hit an electronic trading high of $1,062.70 during the day.

A weak dollar, along with rising oil and gold prices, gave a boost to dollar-sensitive multi-nationals, such as Dow components 3M (MMM), GE (GE) and Johnson & Johnson (JNJ). The rise in oil prices lifted Chevron (CVX), Exxon Mobil (XOM) and other commodity names. 

The House is considering an extension of the first-time homebuyers' tax credit, slated for November expiration. Pulte Homes (NYSE:PHM) shares climbed 4.3%; DR Horton (NYSE:DHI) increased 8.0%; and Lennar (NYSE:LEN) rose 9.1%.

Among retailers, Macy's (NYSE:M) increased 5.1% after reporting a 2.3% sales drop, half the projected decline. Abercrombie & Fitch (NYSE:ANF) rose 5.2% after its sales decline proved less than feared.  Luxury retailer Saks (NYSE:SKS) fell 4.5% following its reported 11.6% decline in comparable sales.

Chicago, IL – September 30, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Agrium (AGU), CF Industries (CF), Intrepid Potash (IPI), Mosaic (MOS), Potash of Saskatchewan (POT) and Market Vectors Agribusiness (MOO).

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

This week: Fertilizer's Farming Problem

During the past 90 days, the Zacks Consensus Estimates have been revised downwards on several fertilizer companies, including Agrium (AGU), Intrepid Potash (IPI), Mosaic (MOS) and Potash of Saskatchewan (POT).

The most recent cuts were related to a warning from POT. The company predicted that its full-year profits would be in the range of $3.25 to $3.75 per share, instead of the prior guidance of $4 to $5 per share. The company blamed "continued slow demand and limited restocking by fertilizer distributors" as the reasons for the revised forecast.

All Is Not Well on the Farm

The big reason why profit projections for fertilizer companies have been falling is not weaker demand for fertilizer, but rather why demand is down. After enjoying very strong profits in 2007 and 2008, many farmers are now seeing their incomes drop. Even after adjusting for a recent rebound, corn futures are down substantially from the start of the year. Wheat prices are also down. Soy prices have plunged over the past few months.

Supply is a big reason why. Though the spring planting season was delayed, favorable weather patterns resulted in bumper crops throughout the summer. At the same time, a decline in oil prices hurt demand for ethanol, which, in turn, impacted farmers.

Compounding matters is the economy. The worldwide contraction likely reduced food consumption. (Did you notice how there were not any headlines about food shortages this year?) Plus, consumers have looked for cheaper ways to feed their families. These factors have kept cattle prices weak, which contributed to weaker demand for grains.

Then there is the banking crisis. Bank closures affect rural areas worse than urban areas because of a lack of competition. In some rural communities, the only nearby bank was seized by the FDIC. Not to mention the increased difficulty of securing loans.

The net result is lower farm profitability. In late August, the Department of Agriculture forecast that farm profits would fall 38% this year. There has been relatively little since then that would cause a big, positive revision to that forecast.

Mergers Are the One Positive

The one positive for the group are the proposed deals.

CF Industries (CF) announced on Monday that it bought 7% of Terra Industries' outstanding stock over the past 2 weeks. CF wants TRA shareholders to accept a merger agreement that would represent an approximate 15% premium over TRA's current share price.

However, Agrium wants to purchase CF. AGU recently extended the deadline for its acquisition offer of CF to Oct 22. (The offer represents approximately a 4% premium over CF's current price.) It is probable that if AGU were to buy CF, CF's acquisition of TRA would be called off.

Compounding matters is the fact that TRA recently announced a special $7.50 per share dividend, payable in the fourth quarter. CF's offer for TRA would be adjusted to reflect this dividend.

The merger activity makes shorting these stocks risky over the very near-term, even with the falling estimates. On the other hand, much of the upside from the proposed deals appears to be priced in. Overall, the downside risks outweigh probable short-term upside, particularly if neither acquisition offer is accepted.

Zacks Rank

IPI, MOS and POT are Zacks #5 Rank ("strong sell") stocks. AGU and CF are Zacks #3 Rank ("hold") stocks. They are all classified in Fertilizers, which has a Zacks Industry Rank of 206, placing the group near the bottom of the Industry Rank List.

Fertilizers stock also account for a significant portion of Market Vectors Agribusiness (MOO), something to consider when evaluating this ETF.

Zacks "Profit from the Pros " e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5611.

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Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact: Charles Rotblut, CFA
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The most recent cuts were related to a warning from POT. The company predicted that its full-year profits would be in the range of $3.25 to $3.75 per share, instead of the prior guidance of $4 to $5 per share. The company blamed "continued slow demand and limited restocking by fertilizer distributors" as the reasons for the revised forecast.

All Is Not Well on the Farm

The big reason why profit projections for fertilizer companies have been falling is not weaker demand for fertilizer, but rather why demand is down. After enjoying very strong profits in 2007 and 2008, many farmers are now seeing their incomes drop. Even after adjusting for a recent rebound, corn futures are down substantially from the start of the year. Wheat prices are also down. Soy prices have plunged over the past few months.

Supply is a big reason why. Though the spring planting season was delayed, favorable weather patterns resulted in bumper crops throughout the summer. At the same time, a decline in oil prices hurt demand for ethanol, which, in turn, impacted farmers.

Compounding matters is the economy. The worldwide contraction likely reduced food consumption. (Did you notice how there were not any headlines about food shortages this year?) Plus, consumers have looked for cheaper ways to feed their families. These factors have kept cattle prices weak, which contributed to weaker demand for grains.

Then there is the banking crisis. Bank closures affect rural areas worse than urban areas because of a lack of competition. In some rural communities, the only nearby bank was seized by the FDIC. Not to mention the increased difficulty of securing loans.

The net result is lower farm profitability. In late August, the Department of Agriculture forecast that farm profits would fall 38% this year. There has been relatively little since then that would cause a big, positive revision to that forecast.

Mergers Are the One Positive

The one positive for the group are the proposed deals.

CF Industries (CF) announced on Monday that it bought 7% of Terra Industries' outstanding stock over the past 2 weeks. CF wants TRA shareholders to accept a merger agreement that would represent an approximate 15% premium over TRA's current share price.

However, Agrium wants to purchase CF. AGU recently extended the deadline for its acquisition offer of CF to Oct 22. (The offer represents approximately a 4% premium over CF's current price.) It is probable that if AGU were to buy CF, CF's acquisition of TRA would be called off.

Compounding matters is the fact that TRA recently announced a special $7.50 per share dividend, payable in the fourth quarter. CF's offer for TRA would be adjusted to reflect this dividend.

The merger activity makes shorting these stocks risky over the very near-term, even with the falling estimates. On the other hand, much of the upside from the proposed deals appears to be priced in. Overall, the downside risks outweigh probable short-term upside, particularly if neither acquisition offer is accepted.

Zacks Rank

IPI, MOS and POT are Zacks #5 Rank ("strong sell") stocks. AGU and CF are Zacks #3 Rank ("hold") stocks. They are all classified in Fertilizers, which has a Zacks Industry Rank of 206, placing the group near the bottom of the Industry Rank List.

Fertilizers stock also account for a significant portion of Market Vectors Agribusiness (MOO), something to consider when evaluating this ETF.

Sector Rank as of Sep 30
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY09 Revisions Ratio	FY09 Estimates Revised Up	FY09 Estimates Revised Down
Consumer Staples	2.67	2.68	2.69	164	61
Conglomerates	2.73	2.69	1.56	14	9
Auto-Tires-Trucks	2.79	2.69	1.00	27	27
Retail-Wholesale	2.82	2.80	2.15	295	137
Computer and Technology	2.89	2.90	2.60	613	236
Basic Materials	2.97	3.00	1.57	149	95
Construction	2.98	2.98	1.25	55	44
Medical	2.98	2.96	1.48	208	141
Consumer Discretionary	3.01	3.00	1.27	123	97
Oils-Energy	3.03	3.01	0.85	235	275
Finance	3.05	3.11	1.26	360	285
Industrial Products	3.07	3.04	1.46	105	72
Business Services	3.08	3.06	1.43	43	30
Utilities	3.08	3.05	0.71	51	72
Aerospace	3.10	3.18	0.43	18	42
Transportation	3.21	3.23	0.89	111	125

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Zacks Investment Research

The week ahead will show to be a busy one.  Leaders from the Group of 20 nations meet in Pittsburgh this week to increase financial regulation in the global economy as the President continues his busy media coverage, addressing economic expectations.  Today the Fed begins its 2-day interest rate policy meeting, with its rate decision Wednesday expected to maintain an interest rate target of 0.0% to 0.25%.  In addition, a multitude of initial public offerings are expected, the most offerings since December 2007.

The Dow Jones industrial average declined 7.79 points, or 0.08%, to end the day at 9,783.92. The broad Standard & Poor's 500 Index retreated 3.27 points, or 0.31%, at 1,065.49 and the tech-heavy Nasdaq Composite Index eased 6.40 points, or 0.30%, to end at 2,126.75.  On the New York Stock Exchange, declining shares beat those that advanced by eight to seven on volume of 1.52 billion shares.  At Wednesday's close, the DJIA stood almost 50% above its 12-year low of last March; the S&P500 at 58%, with the NASDAQ up 68% from its 6-year low.

Shares of FedEx (NYSE:FDX) and Oracle (NASDAQ:ORCL) declined after the companies’ lower-than-expected results. FedEx’s CEO noted plans to up shipping rates by almost 6% in January, a bullish signal of expected volume growth.  FedEx fell 2.2% to $76.46 and Oracle declined 2.8% to $21.52.  A decline in natural gas prices sent shares of Chesapeake Energy (NYSE:CHK) and Nabors Industries (NYSE:NBR) lower.  Chesapeake fell 3.3% to $27.97.  Eastman Kodak (NYSE:EK) fell more than 11% after the company announced plans to raise more than $700 million in senior secured notes.

Among the ten S&P 500 industry groups, telecom companies were the biggest decliners, retreating 1.6%, following UBS' (NYSE:UBS) analyst comments suggesting pressure in wireless business.  Verizon Communications (NYSE:VZ) retreated almost 3% to $29.51.  Moreover, yesterday Verizon's (NYSE:VZ) CEO suggested its wireless operations would consider dividend payments only after debt reductions.  Companies that receive a significant portion of their revenues from overseas operations showed strength, with Caterpillar (NYSE:CAT) up 2.4% and Coca-Cola (NYSE:KO) rising 1.4%.  Basic materials shares declined 0.8%, oil and gas was down 0.7%, and financials retreated 0.5%  

American Airlines parent AMR Corp. (NYSE:AMR) was a major gainer Thursday as its shares surged 19.7% to $8.80 after the company said it secured $2.9 billion in new financing.  AMR also said it is working on its flying schedule and would shift flying to more profitable routes.

Today’s calendar contains little of market-moving interest, with the day's quadruple witching expected to results in volatility.  Lacking a firm catalyst for the next upward move, the demand for increased risk eased, with the greenback backing off its one-year high against the euro, oil prices down $0.68 to $71.79, and gold up $2.20 to $1015.70.

While we have greater confidence in the staying power of the current oil rally, this does not mean that we will not see any short-term pullbacks. On the whole, we expect oil prices in 2010 to be higher than the 2009 levels, but remain significantly below the 2008 peak levels.

Crude oil's near-term fundamentals remain dismal, to say the least. Inventories in the U.S. are at multi-year highs and remain bloated worldwide. At current projections, global 2009 demand will be below last year's level, which itself was below the 2007 level -- the first time since the early 1980's of two back-to-back negative growth years.

The only positive in this otherwise bleak supply-demand picture is OPEC's success at taking a fair amount of oil off the market. OPEC's successful stewardship provided the commodity with a floor in Dec'08 in the low $30's a barrel range.

While the market has been heavily discounting the commodity's near-term problems, we would expect the day-to-day price movement to largely track the news flow about the health of the global economy.

The oil price outlook has historically been the key determinant of the sector's performance. And given our favorable oil price view, we would strongly advocate for taking an over-weight position in the sector.

OPPORTUNITIES

This outlook has major implications for sub-sector choices within the energy space, though the risk-reward trade off for most of these sub-sectors remains compelling despite recent gains.

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are Brazil's Petrobras (PBR) and China's Cnooc Ltd. (CEO). Both of these emerging market energy plays offer lucrative growth opportunities going forward. Italy's Eni (E) also remains attractive at current levels.

Petrobras is perhaps the only major oil company worldwide that has discovered substantial oil reserves in recent years. The company's discovery of oil offshore Brazil in the massive Tupi field, expected to be developed in the coming years, has made Brazil a major oil player.

Cnooc Ltd. remains well placed to benefit from China's growing energy appetite. The company enjoys a monopoly on exploration activities in China's very prospective offshore region. Cnooc Ltd. also has a growing presence in China's natural gas and LNG infrastructure.

WEAKNESSES

Despite their strong recent gains, we continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. We also remain wary of refiners, given weak gasoline demand and strengthening oil prices.

A major sub-sector that fits that description is the onshore drillers. We believe that pricing and margins for operators in these two sub-sectors will remain under pressure through 2010, even as the outlook for natural gas price improves. As such, we would avoid Nabors (NBR) and Patterson-UTI (PTEN), two major North American land drillers.

We continue to have a negative view of refiners as well, particularly independent refiners such as Valero (VLO) and Tesoro (TSO), who have no other line of business to support them in the current soft environment. The massive economy-wide job losses are not expected to reverse anytime soon even though the outlook for the overall economy has steadily improved. This, coupled with an unfavorable regulatory landscape, is expected to keep demand under pressure for the foreseeable future. Margins are expected to remain under pressure given the strengthening oil prices (oil is a refiner's primary feedstock).Zacks Investment Research

After closing Thursday at its highest level since October, the Dow Jones industrial average retreated 22.07 points, or 0.2%, to 9,605.41 on a quiet trading day.  The NASDAQ composite index eased 3.12 points, or 0.2%, to 2,080.90, and the broader Standard & Poor's 500 index fell 1.41 points, or 0.1%, to 1,042.73.  On the New York Stock Exchange, 1.29 billion shares exchanged hands and about four stocks rose for every three that fell.  On the week, the DJIA rose 1.7%, the S&P 500 advanced 2.6% and the NASDAQ was the best performer, rising 3.1%.

This morning’s stock futures are pointing to a lower opening on the Wall Street amid reports of an escalating trade dispute between China and the US.  Dow Jones industrial average futures fell 61, or 0.6%, to 9,531. Standard & Poor's 500 index futures fell 8.00, or 0.8%, to 1,029.30, while Nasdaq 100 index futures fell 13.75, or 0.8%, to 1,669.75.

Bond prices were mixed Friday after their impressive performance the previous day.  The yield on the benchmark 10-year Treasury note fell to 3.31% from 3.35% late Thursday.  The slide in oil prices sent shares of energy companies lower.  Exxon Mobil (NYSE:XOM) slipped 1% to $69.98.  FedEx (NYSE:FDX) shares jumped 6.4% after the company said it now expects to earn 58 cents a share in the first quarter, compared with its prior view of 44 cents a share.  The company said it sees second-quarter earnings of between 65 cents and 95 cents per share, versus its earlier prediction of 70 cents.

For the week all ten S&P500 sectors recorded gains, led by oil and gas (+4.7%) basic materials (+4.6%), and industrials (+4.1%), the sectors considered most economically sensitive.  The sectors also closely reflected changes in the dollar trade, which experienced a fall to a 52-week low.

Reports that the United States has imposed a new 35% tariff on Chinese tire imports met with a retaliatory Chinese response as Beijing announced a dumping and subsidy probe into U.S. chicken imports.  Such measures, however, are likely to results in trade protectionism that could prove especially damaging to emerging countries' growth prospects.

Companies reporting their results include Best Buy (NYSE:BBY), FedEx (NYSE:FDX), Oracle (NASDAQ:ORCL), and Palm (NASDAQ:PALM).  Those scheduled to speak include Fed's Duke on regulatory reform at 8:35 AM ET, Fed's Lacker on financial regulation at 12:30 PM ET and Fed's Yellen on the economic outlook at 3:50 PM ET. President Obama will also address financial market reform as the anniversary of Lehman's demise is acknowledged.

(Editor’s Note: The following is an excerpt from an article in the Exchange-Traded Funds Report in July. Subscribers to ETFR can read the complete piece here.)

Specialty-sector ETFs—also called “thematic” ETFs—have emerged as a major force in the ETF industry.

These ETFs run the gamut of investment possibilities, but have one thing in common: They look past traditional size and sector designations to carve out new investment areas, often driven by a single investment thesis.

Clean energy, infrastructure, nuclear power—by our count, there are now more than 40 of these unique ETFs on the market, with more than $10 billion in assets under management.

Investment manager Van Eck Global has been one of the most successful companies in carving out a foothold among specialty ETFs. Its Market Vectors Gold Miners ETF (NYSE Arca: GDX) is the largest specialty ETF of all, with almost $5 billion in assets.

“We’re looking for compelling investment themes that we believe in for the long term, where the ETF basket approach can be a great tool for market participants,” said Adam Phillips, managing director of Market Vectors, “whether that be for the buy-and-hold investors or the trading community.”

Of course, some investors see things differently.

Rick Ferri, founder of the advisory firm Portfolio Solutions and author of “The ETF Book,” calls thematic ETFs “gimmicky.”

“We don’t use any thematic funds in our management here,” said Ferri. Ferri, a former broker himself, believes thematic ETFs are less popular with independent advisers than they are with brokers for a simple reason: story. He says they are an easy sale to clients who can relate to specific areas like clean water or other environmentally motivated ETFs.

“They come out when they happen to be popular in the news,” Ferri said. He believes they do well as brokers buy them up (sometimes driving the actual price of the ETF up) but that they tend to fall off six to 18 months later.

Roger Nusbaum, portfolio manager and chief investment officer for financial planner Your Source Financial, disagrees.

“In terms of long-term investing and the context of diversified portfolios, I absolutely think there’s utility [in them],” he said. Nusbaum uses them, as well as individual stocks, in his sector-based approach to portfolio construction. He has used the PowerShares Water Resources Portfolio (NYSE Arca: PHO) in client accounts since its launch, for instance, saying he tends to incorporate it as part of the allocation to industrials.

With regard to price run-ups, Nusbaum says some specialty sectors can be “faddish” in their behavior. If a fund covering solar energy jumps by 50%, and you know the industry is not going to fully develop for years to come, he suggests it might be time to reduce your exposure until the price becomes more reasonable.

Slicing & Dicing Themes

One of the most common questions asked by investors is, “Which ETF covers this?” Indeed, it’s often hard to even know what specialty-sector ETFs are available, as by definition they fall into narrow categories unlikely to be highlighted as an “asset class” in the pages of the Wall Street Journal. With so many fund launches, it can be a challenge to simply keep up with what products are on the market.

With that in mind, we have compiled an overview.

Alternative Energy

Last year’s run-up in energy prices and rising concerns about peak oil have combined to dramatically increase investor interest in energy alternatives. From relatively diversified funds to those targeting just solar or wind, investors can now use ETFs to access energy alternatives in practically any flavor they like.

Largest ETF: The PowerShares WilderHill Clean Energy Portfolio (NYSE Arca: PBW) was the first and is still the largest of these ETFs, with $743 million in assets under management. Some consider its exclusive focus on U.S.-listed names limiting, as much of the alternative energy industry is focused abroad. But the fund gains some exposure to these markets via ADRs.

Coal

Coal is the cheapest source of BTUs on the planet, easily beating oil, gas, wind, solar, hydro and nuclear. In addition, both China and the U.S. have huge domestic supplies of coal, and spiking oil prices are encouraging further development of the resource.

Largest ETF: The largest coal ETF by far is the Market Vectors Coal ETF (NYSE Arca: KOL), with $277 million in assets under management. The ETF holds a global portfolio of coal companies, primarily focused on the mid-cap miner space. It is 49% exposed to U.S. companies, with other significant positions in China (23%) and Indonesia (15%).

Nuclear

The long-term case for nuclear energy is clear and clean: The underlying fuel is so plentiful that we will never run out of it, and, when operating safely, nuclear power plants produce zero emissions. Once built, nuclear power is also the cheapest kind of energy on the planet.

Largest ETF: Three ETF companies offer nuclear energy ETFs. The largest is the Market Vectors Nuclear Energy ETF (NYSE Arca: NLR), with $166 million in assets. The fund has a large position in uranium miners (40% of the portfolio), with other concentrations in power generators and plant construction companies.

Commodities

The commodities boom raised the profile of “stuff” as an investment, and ETFs have made the area more accessible. Specialty-sector funds often focus on companies that produce commodities, like water or steel, that do not have liquid futures contracts.

Largest ETF: The largest hard assets ETF is the Market Vectors Agribusiness ETF (MOO), with nearly $1.5 billion in assets under management. Close behind is the PowerShares Water Resources ETF (NYSE Arca: PHO), with $1.2 billion in assets. Other areas of the market include steel, timber and broad-based commodity stocks.

Infrastructure

The term infrastructure is nearly as sweeping as commodities; it covers everything from companies involved in the construction and repair of roads and bridges to those that build and maintain power grids, telecommunications networks, and sewage systems. There’s no denying that infrastructure is a big deal these days: Developed countries desperately need to restore aging systems, and emerging markets need to actually build theirs. As with alternative energy, government stimulus funds can only add to the attraction of this sector.

Largest ETF: The iShares S&P Global Infrastructure Index Fund (NYSE Arca: IGF) is the largest infrastructure ETF available today, with $267 million in assets. See Murray Coleman’s feature on page 6 of this issue for a complete review of the infrastructure ETFs.

Transportation

If oil is the lifeblood of the industrialized world, transportation is the circulatory system. It’s no accident that the world’s (arguably) first stock index was the Dow Jones Transportation Average. And it’s also no surprise that there are a few ETFs focused on transportation.

Largest ETF: The Claymore/Delta Global Shipping ETF (NYSE Arca: SEA) is the largest transportation ETF, with more than $70 million in assets. SEA is sometimes seen as a leading indicator both of economic activity and commodities demand, since rising rates for ships mean incipient increases in industrial production on the receiving end of those shipments.

Green

Not only are there clean energy ETFs, but there are also ETFs that take environmentally friendly approaches in other ways. Two funds and an ETN—the only one in this survey—focus on ecological innovation, such as combating global warming.

Largest ETF: The largest ETF of the bunch is the PowerShares Cleantech Portfolio (NYSE Arca: PZD), which invests in a variety of companies whose products help improve productivity while minimizing the consumption of natural resources. PZD has $123 million in assets.

Miscellaneous

And finally, there’s the “miscellaneous” catch-all category. The funds falling into this category include the only available gaming ETF, a fund covering luxury items and another tracking the Chinese real estate market.

Largest ETF: The largest ETF of the bunch is the Market Vectors Gaming ETF (NYSE Arca: BJK), which invests in gaming (read: gambling) companies around the world. It has roughly $108 million in assets.

Domestic market demand rose by 29% from August 2008, but fell 19.3% sequentially due to seasonality. International market demand dropped by 60.7% year over year due to the strategic repositioning of the company's traffic network at the end of July 2008, which eliminated long-haul routes, and fell by 13.8% compared to last month.

In line with its focus on optimizing operating profitability, the utilization ratio of the company's operational fleet (measured in block hours) averaged around 12 hours/day, versus 11.3 hours/day in the second quarter of 2009. Seating capacity per kilometer flown (ASK) rose 4.2% over the same period last year, but fell 1.7% sequentially due to the lower number of tourist flights.

The global airline industry continues to experience significant financial difficulties, with several carriers filing for bankruptcy protection and recent warnings regarding industry profitability largely due to volatility in oil prices and the economic downturn.

However, since oil prices have almost halved from 2008, operating costs for these companies will reduce considerably. Moreover, falling interest rates in Brazil will help domestic airlines like Lan Airlines S.A. (LFL), TAM S.A. (TAM) and GOL in the coming quarters.

The 30-stock Dow Jones industrial average shed 47.92 points, or 0.50%, to close at 9,496.28.  The broad Standard & Poor's 500-stock index was down 8.31 points, or 0.81%, at 1,020.62.  The tech-heavy Nasdaq composite index lost 19.71 points, or 0.97%, to 2,009.06.  Nevertheless, the Dow managed to end August up 3.5% for its fifth monthly gain in six months while the S&P 500-index recorded its sixth consecutive monthly advance.  The market's measure of volatility, the CBOE Vix "fear factor" index, jumped 5.1% to 26.01, as volume on the NYSE improved to 1.38 billion shares and breadth turned negative to about 11 to 4.

This morning’s stock futures are pointing to a lower opening.  Dow Jones industrial average futures declined 57, or 0.6%, to 9,429. Standard & Poor's 500 index futures fell 6.90, or 0.7%, to 1,012.80, while Nasdaq 100 index futures fell 11.75, or 0.7%, to 1,613.25.  

Besides the Dow average, the S&P500 index rose 3.4% during the month while the tech-heavy Nasdaq was up a modest 1.5%.  Year-to-date the DJIA has risen 8.2%, the S&P 500 is up 13.0% and the Nasdaq has recorded an impressive 27.4% run.    

Sentiments were jittery on the Street and a couple of big corporate mergers and a better-than-expected regional manufacturing report failed to arrest the slide.  The Walt Disney Co. (NYSE:DIS) announced that it would acquire Marvel Entertainment (NYSE:MVL) in a $4 billion cash-and-stock deal.  Disney shares fell 3% to $26.04 while shares of Marvel jumped 25% to $48.37.  In another cash and stock deal, oil field services provider Baker Hughes (BHI) said it had agreed to acquire BJ Services (BJS) for $5.5 billion.  Baker Hughes plunged 9.6% to $34.45 after it announced the deal.  Shares of BJ Services rose 4.1% to $16.06.  

The DJ-UBS commodity index declined 1.7%, sending shares of Alcoa (NYSE:AA) down 3.6%, and Freeport-McMoran (NYSE:FCX) 3.8%.  However, this morning, a report showing a sixth straight monthly expansion in China's manufacturing sector to a sixteen-month high of 54 helped Shanghai Composite regain some ground.

Among S&P 500 industry groups, energy shares were the leading decliners, off 1.8%.  Exxon (NYSE:XOM) slid 1.4% to $69.15.  Financials as a group retreated 0.4%.  Insurer AIG (NYSE:AIG) fell for the first time in 10 days, plunging 12% as investors wondered if the stock was fairly valued. Citigroup (NYSE:C) declined more than 4% to $5 while Morgan Stanley (NYSE:MS) eased about 2% to $28.96.

The Dow Jones industrial average edged up 3.32 points, or 0.03%, to end at 9,509.28.  The Standard & Poor’s 500-stock index fell 0.56 points to end at 1,025.57, and the NASDAQ fell 2.92 points, or 0.14%, to 2,017.98.  On the New York Stock Exchange, winners narrowly edged losers on volume of 1.23 billion shares.

Shares of auto-related companies were under pressure as the government’s cash-for-clunkers program was set to end.  Financial stocks retreated 0.9% after an influential banking analyst noted that the current economic crisis could see another 150-200 banks failing.  Moreover, SunTrust Bank (NYSE:STI) CEO warned of further pressure among US banks from troubled commercial real estate loans throughout 2010.  Its shares fell 3.8%. The news outweighed a report from Barclays Capital (NYSE:BCS) in which ratings on three credit card firms were raised to "overweight," due to estimates that a peak in write-offs is near at hand.  The firm raised its American Express (NYSE:AXP) rating to "overweight," and increased its price target to $38 from $28.

A rise in crude prices to almost $75 per barrel helped oil and gas shares lead the gainers on the S&P 500 with a 1.3% advance.  Shares of ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) rose 2.0% and 1.5%, respectively.  Defensive health care and utility shares also advanced, with gains of 0.3% and 0.2%, respectively.

President Obama's anticipated, 9:00 AM ET announcement from Martha's Vineyard, where he is on vacation with his family, regarding the reappointment of Fed Chairman Bernanke could boost sentiments today.  Many on the Wall Street like Bernanke’s calming presence and have grown increasingly confident in his ability to avoid further financial missteps. Moreover, the early nomination offers the Chairman the opportunity to make plans beyond the end of his term, which would include the exit strategies needed as the economy improves.