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4 Sector ETFs Defying 10-Month Low Job Gains in March

Sanghamitra Saha

U.S. employers added 98,000 new jobs in March, less than the downwardly revised 219,000 in February and market expectations of 180,000. The figure marked the lowest job gains in 10 months.

Decent job gains in the health care (+14,000), mining (+11,000) and construction (+6,000) sectors were offset by 30,000 job cuts in the retail sector. Notably, the construction sector reported its largest job gain in about 10 years in February.

Average job gains over the past three months came in at 178,000 per month after 38,000 jobs were downwardly revised for the first two months. The average is more-or-less on par with the 187,000-monthly average in 2016.

As per many analysts, market expectations excluded weather glitches in March like the Northeast U.S. encountered winter storm Stella. While “unseasonably warm weather may have boosted the payrolls count” in February, March job gains seemed to have taken a beating due to inclement weather (read: Winter Storm Stella to Lift or Hit These Sector ETFs).

Plus, we believe that job gains in February overlapped upbeat sentiments prevailing on Trump’s promises of fiscal reflation and deregulation. March was way volatile on rising uncertainty related to Trump’s promised policies.

How About Unemployment Rate & Wage Growth?

All is not downbeat in the job report.U.S. unemployment rate fell to 4.5% in March — the lowest rate since May 2007 —from 4.7% recorded in the prior month. U6 (“real” unemployment) fell even further to 8.9%, marking the lowest since December 2007. The indicator comprises part-time workers meaning they would wish to do a full-time job.

Wage growth picked up 2.7% year over year in March. On a sequential basis, wage growth was 0.2% in March. Notably, annual wage growth should be in the range of 3 to 3.5%, as per economists, to reach the Fed’s inflation target of 2%.

Market Impact

Market behavior was mixed following the release of this job report. Investors should note that there will be changes in the sector’s performance post mixed job data.  Below we highlight a few sector ETFs that may win in the coming days as these added decent jobs in an otherwise-downbeat month, indicating underlying strength.

Winners

Health Care Select Sector SPDR ETF XLV

The health care sector is in the bright spot in terms of job addition. Though average job growth (32,000) slackened from the last year, health care has added an average of 20,000 jobs per month so far this year. The Zacks Rank #3 (Hold) fund gained 0.18% on April 7, the day job data released.

PowerShares Dynamic Building & Construction ETF PKB

As the construction sector continues to be in the limelight since February thanks to solid creation, investors can have a look at this ETF. The fund consists of stocks of U.S. building and construction companies. It has a Zacks ETF Rank #2 (Buy). The fund was up 0.35% on April 7 (read: Is Spring Selling Season Opening Room for Housing ETFs?)

First Trust RBA American Industrial ETF AIRR

Manufacturing job gains were 26,000 in February, followed by 11,000 jobs in March. Trump has also called for higher infrastructure spending and more labor jobs. This calls for a look at this industrial ETF. AIRR was up 0.93% on April 7 (read: 5 ETFs Not Likely to Fool You in April).

PowerShares Dynamic Food & Beverage ETF PBJ

The leisure and hospitality sector added 9,000 jobs in March, making PBJ a decent pick. The fund was up about 0.1% on April 7.

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