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Sector ETFs to Win or Lose Post Jobs Data

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U.S. employers added 235,000 new jobs in February, breezing past expectations of 191,000. Solid job gains in the construction and manufacturing sectors pushed up the total numbers. Note that the construction sector reported its largest job gain in about 10 years.

U.S. unemployment rate fell to 4.7% in February from 4.8% recorded last month and matched market expectations. Average job gains over the past three months came in at 209,000 per month, easily surpassing 75,000 to 100,000 required to maintain “growth in the working-age population.”

Though “unseasonably warm weather may have boosted the payrolls count” as perBloomberg, and overlapped with upbeat sentiments prevailing in the economy on Trump’s promises of fiscal reflation and deregulation, the figure nothing but increased chances of the Fed rate hike this week (read: Play These Stocks & ETFs If Fed Acts in March).

How About Wage Growth?

Wage growth picked up 2.8% year over year in February.  On a sequential basis, wage growth was 0.2% in February. January's wage growth was upgraded to 0.2% from the earlier 0.1% reading. However, the market is still viewing this wage growth as slow, especially given the possibility of faster rises in rates.

However, with a near full-employment labor market and rising inflationary expectations, wage growth could accelerate ahead as companies may be compelled to hike compensation, as per the source. “A proxy for take-home pay rose a solid 0.5% in February.” Notably, the 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

Traders’ bets on a Fed hike went up to 90% following Friday’s solid job report. PowerShares DB US Dollar Bullish ETF UUP was up about 0.2% on March 13. Two-year U.S. Treasury yield reached the highest level since 2009 while yield on the 10-year U.S. Treasury touched the highest level in over two years on March 13 (read: Inside Dollar's Valuation: ETFs in Focus).

Investors should note that there will be changes in the sector performance post solid job data.  Below we highlight a few sector ETFs that may win and lose in the coming days.

Winners

PowerShares Dynamic Building & Construction ETF (PKB - Free Report)

As the construction sector was at the limelight with February’s job 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) (read: Is Spring Selling Season Opening Room for Housing ETFs?)

SPDR S&P Bank ETF KBE

In a rising rate environment, bank stocks perform better. So, investors can tilt toward this Zacks Rank #1 (Strong Buy) ETF KBE.

Industrial Innovation ETF ARKQ

Manufacturing job gains were 28,000 in February, the highest since August 2013. Trump has also called for higher infrastructure spending. This calls for a look at this industrial ETF.

Losers

SPDR Dow Jones REIT ETF RWR

As bond yields rose, the drive for high-yielding securities is likely to fall. As a result, high dividend paying REIT securities and ETFs may fall out of investors’ favor. The fund has a Zacks ETF Rank #4 (Sell).

SPDR S&P Retail ETF XRT

The fund gives exposure to retail stocks. Notably, the retail sector – which is undergoing an upheaval thanks to the gradual demise of brick-and-mortar retailing – reported maximum job cuts of 26,000, the highest in four years. The fund has a Zacks Rank #3 (Hold) but investors should watch it carefully.

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