ETFs to Gain or Lose After Strong Jobs Report

Wall Street had a strong start to the second quarter courtesy of encouraging data released on April 1. In particular, a solid March job report injected further optimism into the economy, driving stocks higher. This is especially true as U.S. hiring continued its strong momentum with 215,000 jobs added last month following the revised 245,000 job additions in February. This is much above Reuters’ expectation of 205,000 (see: all the Large Cap ETFs here).

The majority of the additions were seen in retail, health care, and construction that more than offset the decline in the manufacturing and mining sectors. Notably, the economy has been creating over 200,000 jobs per month since 2014. Average hourly wages grew by 7 cents to $25.43 in March bringing the year-over-year increase to 2.3%. This is much better than the 2-cent decline in February but lower than the 2.6% year-over-year wage growth in December that marked the strongest improvement since 2009. However, the unemployment rate ticked up slightly to 5% from an eight-year low of 4.9%.

Meanwhile, the labor force participation rate, which indicates the percentage of working-age people who are employed or looking for work, climbed to the highest level since March 2014 at 63%. The robust pace of job creation suggests that the U.S. is one of the healthiest economies in the world that will be able to withstand global uncertainty. However, the data failed to alter the cautious expectations for a rates hike.

Given this, a few ETFs will severely impact by the solid jobs data while some are expected to gain in the weeks ahead. Below, we have highlighted some of these that are especially volatile post jobs data:

ETFs to Gain

PowerShares DB US Dollar Bullish Fund (UUP)

A healthy job market and the resultant improving economy are expected to pull in more capital into the country and lead to appreciation of the U.S. dollar. UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of the U.S. Treasury securities.

In terms of holdings, UUP allocates nearly 57.6% in euro and 25.5% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $818.6 million while sees an average daily volume of around 1.7 million shares. It charges 80 bps in total fees and expenses, and lost 0.04% on the day following the jobs report. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: ETF Winners & Losers Following Yellen Comments).
 
SPDR S&P Homebuilders ETF (XHB)

Solid labor market fundamentals along with affordable mortgage rates will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in housing-related stocks and ETFs. The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index.

In total, the fund holds about 37 securities in its basket with none accounting for more than 5.73% share. The product focuses on mid-cap securities with 65% share, followed by 27% in small caps. The fund has amassed about $1.5 billion in its asset base and trades in heavy volume of about 3.6 million shares. Expense ratio comes in at 0.35%. XHB added 0.7% on the day and has a Zacks ETF Rank of 2 with a High risk outlook (read: Are Housing ETFs Ready to Ride on Spring Selling Season?).
 
SPDR S&P Retail ETF (XRT)

Retail will also benefit from accelerating job growth and modest wage growth that will lead to increased spending power. XRT tracks the S&P Retail Select Industry Index, holding 100 securities in its basket. It is widely spread across each component as none of these holds more than 1.47% of total assets. Small-cap stocks dominate about three-fifths of the portfolio while the rest have been split between the other two market-cap levels.

XRT is the most popular and actively traded ETF in the retail space with AUM of about $605 million and average daily volume of around 4.4 million shares. It charges 35 bps in annual fees and lost 0.1% on the day. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook.

ETFs to Lose

SPDR Gold Trust ETF (GLD)

An upbeat jobs report dampened the appeal for gold as it reflects strength in the economy and boosted investor risk sentiment. As a result, the strongest Q1 rally of the yellow metal in nearly three decades could come to a halt and the product tracking this bullion like GLD will lose. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $31.9 billion and average daily volume of around 8.7 million shares a day. Expense ratio came in at 0.40%. The fund was down 0.6% on the day and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Are These ETFs Making You An April Fool?).
 
iShares 20+ Year Treasury Bond ETF (TLT)

The U.S. government bonds would be badly hit as strong hiring led to speculation that the economy can withstand a tighter monetary policy. This would lead to higher Treasury yields and lower bond prices. In particular, bonds and ETFs tracking the long end of the yield curve would be impacted the most. The ultra-popular long-term Treasury ETF – TLT – tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and has AUM of $8.1 billion. Expense ratio came in at 0.15%. Holding 32 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.61 years and effective duration of 17.77 years. The fund is up just 0.05% following the jobs report and has a Zacks ETF Rank of 2 with a High risk outlook.

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PWRSH-DB US$ BU (UUP): ETF Research Reports
 
SPDR-SP HOMEBLD (XHB): ETF Research Reports
 
SPDR-SP RET ETF (XRT): ETF Research Reports
 
SPDR-GOLD TRUST (GLD): ETF Research Reports
 
ISHARS-20+YTB (TLT): ETF Research Reports
 
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