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ISM Services Index Rebounds in October: ETFs in Focus

Sweta Jaiswal, FRM

The Institute for Supply Management (ISM) recently announced fresh figures for its service index for the month of October. Notably, the reading surpassed expectations. The services sector accounts for more than two-thirds of U.S. economic activity. Per the ISM index, the sector has been growing for 117 straight months. Notably, gauges for sales, new orders and employment showed an improvement from September (read: Forget Manufacturing Slowdown, Bet on These Industrial ETFs).

A Glimpse at the Data

The ISM reported its service index reading at 54.7% for October, surpassing the consensus estimate of 53.5%. The reading was also higher than September’s 52.6%. Notably, any reading above 50% indicates expansion in the services sector while something above 55% reflects outstanding performance.

Meanwhile, the Non-Manufacturing Business Activity Index jumped to 57% from the September reading of 55.2%, reflecting growth for the 123rd consecutive month. Additionally, the New Orders Index hit 55.6% in October compared with 53.7% in September. Moreover, the Employment Index rose to 53.7% in October from September’s 50.4%.

Also, according to the ISM report, the 13 non-manufacturing industries that witnessed growth in October are Agriculture, Forestry, Fishing & Hunting; Utilities; Professional, Scientific & Technical Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Management of Companies & Support Services; Health Care & Social Assistance; Accommodation & Food Services; Arts, Entertainment & Recreation; Construction; Finance & Insurance; Public Administration; and Information.

Then again, the industries which reported a decline are Educational Services; Other Services, Retail Trade, Wholesale Trade and Mining.

ISM chair Anthony Nieves said “The non-manufacturing sector had an uptick in growth after reflecting a pullback in September. The respondents continue to be concerned about tariffs, labor resources and the geopolitical climate.”

Encouraging Data Releases

The robust jobs data report for October has instilled optimism among investors. In the month, U.S. employers added 128,000 new jobs, after an upwardly revised 180,000 gains in September. The latest number beat market expectations of 89,000. After revisions, job gains averaged 38,000 per month over the last three months (read: Sector ETFs to Win After Robust October Jobs Data).

Moreover, the U.S. economy grew an annualized 1.9% in the third quarter of 2019, surpassing expectations of 1.6%, following a 2% uptick in the previous three-month period. Continued consumer spending as well as government expenditures contributed to growth(read: U.S. Q3 GDP Better Than Expected: ETFs to Benefit).

ETFs in Focus

Wall Street is at a record high right now. The release of positive service sector data should support the upside. Let us now discuss a few ETFs focused on providing exposure to U.S. equities. 

SPDR S&P 500 ETF Trust SPY

This fund is the most popular ETF traded in the U.S. markets. It seeks to provide exposure to the largest and most stable companies and tracks the S&P 500 index.

It has AUM of $280.38 billion and charges a fee of 9 basis points a year. From a sector look, the fund has high exposure to Information Technology, Health Care and Financials with 22.39%, 13.71% and 13.16% allocation, respectively. The fund has returned 25.6% year to date. It currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: ETF Asset Report of October).

iShares Core S&P 500 ETF IVV

This fund is a low-cost ETF that seeks to provide exposure to the large established U.S. companies and tracks the S&P 500 index.

It has AUM of $193.57 billion and charges a fee of 4 basis points a year. From a sector look, the fund has high exposure to Information Technology, Health Care and Financials with 22.34%, 13.68% and 13.13% allocation, respectively. The fund has returned 25.7% year to date. It currently has a Zacks ETF Rank #2 with a Medium risk outlook.

Invesco QQQ ETF QQQ

This fund is a popular ETF that tracks the Nasdaq 100 index.

It has AUM of $79.30 billion and charges a fee of 20 basis points a year. From a sector look, the fund has high exposure to Information Technology, Communication Services and Consumer Discretionary with 46.35%, 21.52% and 15.57% allocation, respectively. The fund has returned 33.2% year to date. It currently has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

SPDR Dow Jones Industrial Average ETFTrust DIA

The fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.

It has AUM of $21.97 billion and charges a fee of 17 basis points a year. From a sector look, the fund has high exposure to Industrials, Information Technology and Financials with 20.42%, 20.26% and 14.75% allocation, respectively. The fund has returned 21.2% year to date. It currently has a Zacks ETF Rank #1 with a Medium risk outlook.

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SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
 
iShares Core S&P 500 ETF (IVV): ETF Research Reports
 
Invesco QQQ (QQQ): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
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