Dull U.S. Job Data Brighten These ETFs

Weaker-than-expected U.S. job report weakened investors’ nerves for the second straight month in May. While several U.S. economic data released lately came in stronger, fanning the possibility of another rate hike this month or the next, shockingly low job numbers for the month of May now weaken the case for a hike.
The month of May saw the addition of just 38,000 new jobs. This is more than 100,000 short of  analysts’ estimated low range prior to the release of the report.

Job growth in May was the lowest in over five years and below the downwardly revised 123,000 inthe prior month and far below the market estimate of 164,000.
While a strike in Verizon was responsible for 25–35K lesser jobs, nothing could explain job growth as low as 38K. In fact, temporary employment, Construction, Mining and Manufacturing sectors shed jobs in the month.

On a positive note, the unemployment rate fell to 4.7% — the lowest since November 2007. The average hourly rate rose 0.2%. Health care added 46,000 jobs in May.  Food and Drinking establishments and Professional/Business services also generated about 22,000 and 10,000 jobs, respectively, in May.

Is Fed Hike Imminent?

With the downbeat job data, market watchers have almost ruled out the possibility of a rate hike in June. Traders’ bets on a Fed hike by July came down from 55% prior the job report to 27% currently.

ETFs to Gain

Yield on the 10-year U.S. Treasury slipped 10 bps to 1.71% after the release of the job data on June 3. PowerShares DB US Dollar Bullish ETF (UUP) was down about 1.6% on June 3, while the broader market was also subdued in anticipation of tepid U.S. economic recovery.

Among them, top U.S. equities’ ETFs SPDR S&P 500 ETF (SPY), Dow Jones Industrial Average ETF (DIA) and PowerShares QQQ Trust (QQQ) shed about 0.3%, 0.1% and 0.5%, respectively on June 3.

However, investors should note that there are ample ways to profit out of this downbeat scenario. Below we highlight a few ETFs that may stage a rally in the coming days.

SPDR Gold Trust ETF (GLD)

Gold bullion ETF fell out of investors’ favor in recent times on a sooner-than-expected Fed rate hike bet. But May’s job data gave the metal a fresh lease of life as the greenback fell. GLD was up about 2.8% on June 3.

PowerShares DWA Utilities Momentum ETF (PUI)

As bond yields fell, the drive for high-yielding securities soar. As a result, high dividend paying utility securities and ETFs gained investors’ attention. Moreover, utilities are defensive in nature and normally remain less ruffled in an acute market sell-off. PUI yields 2.39% annually and added about 1.7% on June 3 (see all Utilities/Infrastructure ETFs here).

iShares 10+ Year Credit Bond (CLY)

In a falling yield environment, investors found investment grade corporate bonds as compelling options. The investment grade U.S. corporate bond market has been on a decent path lately as these normally yield more than their Treasury cousins, with only a little rise in risk. Thus, CLY, which yields about 4.16% annually, added over 1.3% on June 3 (read: Time for Investment Grade Corporate Bond ETFs?).

First Trust Morningstar Dividend Leaders ETF (FDL)

The underlying index of the fund gives exposure to a dividend portfolio which has a steady record of increasing dividend as well as the ability to sustain the payouts. Such products are good choices in a wobbly market like the one we are facing now. The fund yields about 3.16% annually and was up over 0.6% on June 3 (read: Dividend ETFs Hitting All-Time Highs Ahead of Fed Meet).

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PWRSH-DB US$ BU (UUP): ETF Research Reports
 
SPDR-SP 500 TR (SPY): ETF Research Reports
 
NASDAQ-100 SHRS (QQQ): ETF Research Reports
 
SPDR-DJ IND AVG (DIA): ETF Research Reports
 
SPDR-GOLD TRUST (GLD): ETF Research Reports
 
PWRSH-DW UTL MO (PUI): ETF Research Reports
 
ISHARS-10+Y CB (CLY): ETF Research Reports
 
FT-MRN DVD LE I (FDL): ETF Research Reports
 
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