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ETFs to Buy or Dump Post Upbeat July Jobs Data

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U.S. employers added 209,000 new jobs in July, breezing past expectations of 183,000 but falling shy of an upwardly revised 231,000 in June. Solid job gains in food services and drinking places, business services and health care sectors led to the estimate beat. Notably, May’s job data was also revised up to 152,000 from 145,000.

U.S. unemployment rate fell to 4.3% in July from 4.4% last month. Average job gains this year came in at 184,000 per month, easily surpassing 75,000 to 100,000 required to maintain “growth in the working-age population.” The last three months’ average job growth remained more upbeat at 195,000.

What About Wage Growth?

Wage growth picked up 2.5% year over year in July against expectations of a decline to 2.4%.  On a sequential basis, wage growth was 0.3% at $26.36 in July. However, the market is still viewing this wage growth as slow and find the job report ‘positive but measured’.

As per a senior economic analyst for consumer financial services firm, "while the pace of jobs creation in 2017 may not be as strong as the year before, it’s still respectable for mature economic expansion." The analyst reconfirmed that employers are hopeful about the economy.

Market Impact

Whatever the case, market watchers are upbeat about the job market and the economy. Markets are now pricing in less than a 50% chance of an interest rate hike in December.

PowerShares DB US Dollar Bullish ETF UUP was up about 0.9% on August 4. The 30-year Treasury bond’s yield rose 3 basis points to 2.84% while the 10-year benchmark U.S. Treasury bond yields increased 3 bps to 2.27%.

Against such a backdrop, several ETFs are expected to gain in the weeks ahead whereas some are likely to retreat. Below we have highlighted these options (read: How to Build a Winning ETF Portfolio for Second-Half 2017):

ETFs to Gain

PowerShares S&P SmallCap Health Care Portfolio ETF PSCH

As per trading economics, health care added 39,000 jobs in the month, with employment specifically rising in ambulatory health care services (added 30,000 jobs) and hospitals (added 7,000 jobs). The sector has generated about 327,000 jobs over the past year.

The index of the fund looks to track stocks of health maintenance organizations, hospitals, clinics, dentists, opticians, nursing homes etc. The fund added about 0.3% on August 4.

Nasdaq Bank ETF FT FTXO

Post job data, the banking sector started enjoying the benefit of a rising rate environment. The fund added over 0.9% on August 4.

PowerShares Dynamic Food & Beverage Portfolio PBJ

The food and beverage industry added substantial jobs in July. Plus, rising wages should boost consumers’ sentiment and business of the segment. the fund added about 0.12% on August 4 (see Broad Developed World ETFs here).

iShares Core S&P Small-Cap ETF IJR

Since job data reflects U.S. economic growth momentum, small-cap ETFs like IJR should get a boost. Note that small-cap stocks better reflect the domestic economy. IJR gained about 0.4% on August 4 (read: S&P & Russell Say No to Snap: Impact on ETFs).

JPMorgan Diversified Return International Currency Hedged ETF JPIH

With the greenback gaining strength, yen shed its value. CurrencyShares Japanese Yen ETF FXY was down about 0.7% on August 4. This should bode well for Japan investing as those companies have huge export exposure and perform better in a falling yen environment.

ETFs to Lose

SPDR Gold Trust ETF (GLD - Free Report)

The upbeat jobs report cast a pall on gold prices as the greenback gained strength. The fund lost about 0.8% (read: 6 ETFs to Buy if Global Tensions Flare Up).

iShares 20+ Year Treasury Bond ETF TLT

U.S. Treasuries dropped on the news, pushing yields higher. This long-term Treasury bond ETF lost about 0.9% on the day.

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