The U.S. market was taken aback by the weak job growth data for December, suggesting that the Fed might take a more cautious stance on its plan to curb the massive stimulus program. Additionally, it gives more ammo to the idea that the Fed may hold off on more QE reductions for longer than initially expected. In December, the Fed finally decided to cut its bond purchases by $10 billion starting this month.
According to the recent report, the U.S. economy added just 74,000 jobs in December, much below the analysts’ expectation of 196,000 polled by Reuters. This represents the slowest job growth rate in three years.
Though the feeble jobs numbers took a toll on labor market recovery and the U.S. economy, the weakness could be largely due to severe cold weather, which is a temporary factor (read: 5 ETF Predictions for 2014).
Otherwise, the slew of other economic data such as expanding manufacturing activity, strong exports, upbeat GDP growth, solid retail and housing data and increasing consumer confidence point to faster growth that would translate into even more jobs. Further, the unemployment rate dropped to a five-year low of 6.7% in December from 7% in November.
While the disappointing December job additions pushed down bond yields and the dollar, it benefited many corners of the market. Below, we have highlighted some sectors which were deep in green on the session following the report:
The biggest winners from the unexpected fall in the U.S. job growth were definitely the mining stocks, in particular gold and silver. This is because lower hiring raised some concern on U.S. economic growth, thereby leading investors to turn their focus on the safe investments.
Acting as a leveraged play on underlying metal prices, these stocks tend to experience more profits than their bullion cousins in the rising metal market. Though there are several ETFs that enjoyed strong gains, Market Vectors Junior Gold Miners ETF (GDXJ - ETF report) added more than 5% on the day (read: Can Gold Mining ETFs Dazzle in 2014?).
This fund tracks the Market Vectors Global Junior Gold Miners Index. In total, the product holds about 69 securities that are widely spread out across each security as none of these make up for more than 4.80% of assets. Canadian firms take the lion’s share at 60.1%, though Australia (20.8%) and the U.S. (9.2%), round out the top three.
The product has amassed about $1.15 billion in its asset base while trading in solid volume of more than 1.1 million shares a day. The ETF charges 55 bps in fees per year from investors.
Some investors returned to emerging markets, as weaker-than-expected job data might hinder the Fed taper plan, boosting capital inflows into these nations. In particular, three countries – Indonesia, India and Turkey – saw great trading on the day, adding over 2% (see: all the Asia-Pacific Emerging ETFs here).
Among these countries, one that really soared was the iShares MSCI Indonesia Investable Market Index Fund (EIDO - ETF report). This is the most popular ETF tracking the Indonesian market with AUM of $324.1 million and average daily volume of nearly 585,000 shares.
The fund tracks the MSCI Indonesia Investable Market Index and charges 61 bps in annual fees from investors (read: 3 Emerging Market ETFs to Watch for Political Issues in 2014).
Holding 113 securities, the product is concentrated across both sectors and securities. The top two firms account for nearly double-digit share in the basket, while from a sector look, financial dominates the fund’s return with one-third share. The ETF gained 4.43% on the session and has a Zacks ETF Rank of 3 or ‘Hold’ rating.
U.S. Treasury securities jumped on the news, sending the yields lower with the biggest one-day drop since October. Yields on 10-year Treasuries slipped below 2.9% on the day.
Though all categories moved higher on the session, long-term Treasury bond ETFs benefited the most from the weak jobs data (read: Fed Tapers Bond Purchases: 3 ETFs in Focus on the News).
The most popular and liquid ETF that provides exposure to the long-term Treasury bond market is the iShares 20+ Year Treasury Bond ETF (TLT - ETF report). The fund follows the Barclays Capital U.S. 20+ Year Treasury Bond Index and holds 22 securities in its basket.
The average maturity comes in at 27.34 years and the effective duration is 16.30 years. The fund focuses on the top credit rating bonds (AA+ and higher).
The product has AUM of $2.4 billion and sees heavy volume of roughly 8 million shares per day. The ETF charges 0.15% in expenses. TLT added nearly 1.2% on the session and has a decent Zacks ETF Rank of 3 or ‘Hold’ rating.
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