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Sector ETFs to Win on Strong April Job Data

Sanghamitra Saha

U.S. employers added 211,000 new jobs in April, higher than the downwardly revised 79,000 in March and market expectations of 185,000. Solid job gains in the leisure and hospitality, health care, financial activities, and mining sectors pushed up the total number, as per trading economics.

The unemployment rate was 4.4%  -- about a 10-year low – as U.S. employers recorded more-than-expected hiring. However, wage growth remained soft, having grown only 2.5% on a year-over-year basis. As per an article published on Bloomberg, “the administration wants to see wages rise faster.”

As per the Trump administration, an overhaul of the tax system, deregulation and negotiations for better trade prospects will likely persuade more companies to fully operate within the U.S. border, bring back manufacturing jobs to America and benefit overall consumer spending in the country, going by the Bloomberg article.

Bloomberg went on to explain the view of the administration, which foresees U.S. economic growth at 3% within two years (if those measures are enacted), a level not realized by the American economy in over a decade. In 2016, the U.S. GDP grew at a five-year low of 1.6%.

Market Impact

Traders’ bets on a Fed hike in June went up to 81% following Friday’s solid job report, from 79% before the data released. Investors should note that there will be changes in the sector’s performance post solid job data. Below we highlight a few sector ETFs that registered solid job growth in the month and will thus be in focus ahead (read: Hawkish Fed Sentiments Put These ETFs in Focus).

Likely Winners

PowerShares Dynamic Leisure and Entertainment Portfolio ETF PEJ

As the sector was in the limelight with April’s job creations, investors can have a look at this ETF. As per tradingeconomics, leisure and hospitality created 55,000 jobs. Employment in food services and drinking places showed an uptick sequentially and annually.

The fund consists of U.S. leisure and entertainment stocks. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: How Consumer ETFs Crushed the S&P 500 Bull Market Run).

SPDR S&P Metals and Mining ETF XME

As per tradingeconomics,about 9,000 jobs were created in the mining sector in April. XME looks to track the S&P Metals and Mining Select Industry Index (read: Trump Nearing 100 Days in Office: ETF Winners & Losers).

Financial Select Sector SPDR ETF XLF

The financial activities sector added 19,000 jobs in April. In a rising rate environment, financial stocks perform better. If the sentiments around the economy continue to improve and the Fed remains steadfast in hiking rates, bond yields may go up, benefiting this Zacks Rank #1 (Strong Buy) ETF XLF.

First Trust Health Care AlphaDEX Fund FXH

Jobs in the health care sector grew by 37,000in April. As per tradingeconomics, “health care employment continued to trend up over the month (+20,000). This is in line with the industry's average monthly job growth during the first quarter of this year.” The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Trump Wins Healthcare Vote: ETFs to Watch).

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