Two back-to-back hurricanes, Harvey and Irma, hurt the September job report. Non-farm employment in the United States declined by 33 thousand last month, after an upwardly revised 169 thousand rise in August. September data markedly fell shy of market expectations of 90 thousand gains. It is the first decline in payrolls since September 2010. The unemployment rate fell to a new business-cycle low of 4.2%, as per an article published on Wall Street Journal.
Wage growth picked up 2.9% year over year, which was the strongest growth since 2009. Average hourly earnings rose 12 cents to $26.55 sequentially. There was sharp drop in employment in food services and drinking places thanks to hurricanes. However, payroll gains were noted in the health care, transportation and warehousing industries.
Market Impact
Whatever the case, market watchers see this dip as transitory. Traders’ bets on a Fed hike in December are still alive and kicking. Probability for December rate hike went up to above 90% from 77% on Thursday and 40% a month ago. The benchmark 10-Year U.S. Treasury yield was 2.37% on Oct 6, post the release of job data. This was 2 bps higher than what we saw the day before.
Against such a backdrop, several ETFs are expected to show their strength ahead. Below we have highlighted these options.
SPDR Health Care Select Sector (MX:XLV) SPDR Fund XLV
As per trading economics, health care added 23,000 jobs in the month, with employment specifically rising in ambulatory health care services (added 25,000 jobs). The index of the fund looks to track stocks of pharmaceuticals; health care providers & services; health care equipment & supplies; biotechnology; life sciences tools & services; and health care technology companies.
SPDR S&P Transportation (NYSE:XTN) ETF XTN
Employment in transportation and warehousing activities rose by 22,000 in September. The transportation sector is best positioned to take advantage of falling crude also (read: 5 Sector ETFs for Revenue Growth Play).
SPDR S&P Insurance ETF (LON:KIE)
Employment in financial activities rose by 10,000 in September. Job additions in insurance carriers and allied activities (+11,000) mainly hinted at ‘hurricane-recovery efforts’, as per trading economics. The sector is enjoying the dual benefits of job growth and a rising rate environment (read: Insurance ETFs Back On Track Post Hurricane Irma).
S&P Midcap 400 Growth ETF Vanguard IVOG
With both the United States and global economy on the rise, it is time to play mid-cap growth ETFs like IVOG. Mid-caps have moderate exposure to both domestic and international economies.
Investors with slight confusion about the recent plunge in job data may want to look abroad which is flying high. Plus, rising U.S. bond yields may translate into higher greenback eventually. This will go against large-cap stocks with greater foreign exposure. But through mid-cap growth ETFs, investors can mitigate the adverse impact of a rising dollar while tap the surge in the global economy.
Technology Alphadex First Trust (AX:FXL)
Though the S&P 500 and the Dow Jones slipped in response to weak job data, the tech-heavy NASDAQ Composite stayed steady. Overall, tech shares performed better in recent trading. So, investors can definitely look past the weak U.S. job data and target tech ETF plays (read: Invest in FANG Stocks With These ETFs).
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SPDR-HLTH CR (XLV): ETF Research Reports
SPDR-SP TRANSPT (XTN): ETF Research Reports
FT-TECH ALPHA (FXL): ETF Research Reports
SPDR-KBW INSUR (KIE): ETF Research Reports
VANGD-SP4 GRWTH (IVOG): ETF Research Reports
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Zacks Investment Research