The Week Ahead

Last week the Dow Jones industrial index ended at record highs three sessions in a row, while both S&P 500 and Nasdaq ended at more than 6-year highs.

In the week ahead we need to tread the water with caution. This week will bring figures of earnings and guidance from about 177 S&P500 constituents (including 6 Dow components). Serious investors will closely look at earning reports from some of the bellweather companies like 3M, Amazon, Amgen, Apple, AT&T, Boeing, Dupont, Exxon Mobil, Ford, Microsoft, Qualcomm, Texas Instruments.

The week will also be dominated by the latest levels for some economic indicators, including reports on consumer confidence, new and existing home sales, the first quarter gross domestic product growth report and the Federal Reserve's 'beige book' report on the economy. On Tuesday, the National Association of Realtors will release its reading on existing home sales for March -- which will provide a good indication of the direction of a crucial component of US economy. Cautious investors may also keep in perspective the upcoming meeting of Federal Reserve on May 9th and may become too eager to pull some money out of these high peaks before the market feels shaky about the future of the short term interest rate.

Of the 26% of S&P 500 companies that have already reported, 65% of them have beat their forecasts, 17% have met analysts' estimates while 18% have missed. This coming week will give us a clearer idea if Dow Jones have the potential to reach the 13000 level and march forward.

Mortgage Rate Turned Lower

The 30-year fixed-rate mortgage rate decreased for the first time since early March this week. The latest reports of moderation in inflation rates from the core producer price and consumer price indexes seem to be the catalyst behind this decline. Excluding food and energy, the core inflation rate for consumer prices rose 2.5% year-over-year, the smallest annual growth since May 2006.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage went down to 6.17% from last week's average of 6.22%. The rate was 6.53% one year back. The 15-year fixed rate averaged at 5.89% this week -- down slightly from last week's average of 5.90%. At this time last year this rate was 6.17%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) also changed to 5.92% -- only a little bit from last week's average of 5.93%. The hybrid averaged 6.16% a year ago. One-year Treasury-indexed ARMs averaged 5.45%, down from 5.47% of last week. This rate averaged 5.63% a year ago.

ETF for Junk Bonds

Last week, Barclays Global Investors launched the first Exchange Traded Funds (ETF) --the iShares iBoxx High Yield Corporate Bond Fund (HYG). The fund is the first one to invest in 'junk' bonds. Barclays now offers sixteen fixed-income ETFs, up from just six last year.

'Junk' bonds are those speculative securities that are rated below investment-grade and are considered risky investments. But, in the spirit of 'no risk no gain', such bonds also find investment from income-seeking individuals or institutions for their high level of yield. Some investors also buy such high-yield bonds as a tool to diversify investment portfolios. Such bonds can appreciate sharply during good economic times, when defaults are low and risk discounting is reduced. When markets gets into downturn, however, credit spreads can widen and high yield can bear the brunt.

The iShares iBoxx High Yield Corporate Bond Fund holds 50 issues and has an expense ratio of 0.5%. The fees on Barclays' other bond ETFs for the most part range between 0.15% and 0.25%. The relatively higher 0.5% expense ratio for the new ETF reflects the tougher liquidity challenges in the high-yield market.

On Friday, HYG closed at $104.25.

3 New Mutual Funds from Schwab

Yesterday, Charles Schwab & Co launched 3 open-end mutual-funds to track benchmarks based on valuation criteria that fund managers often use to pick stocks. This differs from traditional benchmarking, which takes market capitalization into account to weight holdings.

Robert Arnott, chairman of Research Affiliates, a Pasadena, CA based company, developed these so-called fundamental indexes. Instead of weighting stocks by market capitalization, Arnott's method evaluates stocks on metrics such as book values, cash flow, sales and gross dividends. His firm teamed up with index-provider FTSE Group to create and run the benchmarks for Schwab's newest mutual-fund offerings.

Those are Schwab Fundamental U.S. Large Company Index Fund (SFLVX) and Schwab Fundamental U.S. Small-Mid Company Index Fund (SFSVX) and Schwab Fundamental International Large Company Index Fund (SFNVX) which follows an all-world index, minus the U.S., and covers the 1,000 largest companies in the developed world, including Canada.

These open-end mutual funds carry expense ratios of 0.59% and require an initial investment of $2,500 in taxable accounts. Two other classes are available as well, ranging in minimums of $50,000 to $500,000. The upper-end requirements are focused towards advisers, who can pull their clients' assets and buy into the fundamentally based funds for 0.35%.