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ETFs to Gain or Lose Post Dismal March Jobs Data

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The decade-long job growth trend seems to have come to an end as COVID-19 has resulted in an unprecedented spike in jobless claims. This is especially true as the U.S. lost 701,000 jobs in March, making it the worst month for American jobs since the depths of the Great Recession in March 2009. In fact, it is the first time that the economy has lost this many jobs in a month since September 2010.

The leisure and hospitality industry was the most affected, mainly food services and drinking places, which shed 459,000 jobs. This was followed by job losses of 61,000 in health care and social assistance, 46,000 in retail trade, 52,000 in professional and business services and 29,000 in construction.

Meanwhile, unemployment jumped to 4.4% from a near 50-year low of 3.5%. It was the highest unemployment rate since August 2017 and the largest single-month change in the jobless rate since January 1975. The dismal report came in as stringent measures to control the novel coronavirus outbreak resulted in shutdown of businesses and factories and confirmed that a recession is underway (read: Prepare for 'Painful Two Weeks' With 5 ETF & Stock Strategies).

President Donald Trump has warned of “very, very painful two weeks” in face of the rapidly spreading disease. The White House projects that the coronavirus pandemic could claim 100,000 to 240,000 lives, even if current social distancing guidelines are maintained. United Nations stated that the outbreak is the “most challenging crisis we have faced” since World War II.

As such, the unemployment rate could soar significantly in the coming months. One of the worst predictions comes from Federal Reserve Bank of St. Louis President James Bullard who expects the rate to hit 30% this quarter. The treasury secretary, Steve Mnuchin, also expects unemployment could rise to 30% in the coming months. Bloomberg Economics sees the rate rising to 15% soon while forecasting firm Oxford Economics projects a 16% unemployment rate by May with the loss of 27.9 million jobs, more than triple the 8.7 million jobs cut during the 2007-2009 recession and its aftermath. If the unemployment climbs above 15%, then it would be the highest on record since 1940.

The Congressional Budget Office expects the unemployment rate to climb past 10% in the second quarter.

Against such a backdrop, a few ETFs are expected to gain in the weeks ahead while some will be severely impact by the weak jobs data. Below, we have highlighted some of these that are especially volatile post the jobs data:

ETFs to Win

SPDR Gold Trust ETF (GLD - Free Report)

The disappointing job report has led to investors’ flight to safety in gold bullion. As a result, products tracking this bullion like GLD will gain. The fund tracks the price of gold bullion measured in U.S. dollars, and is kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $50.7 billion and heavy volume of nearly 10.6 million shares a day. It charges 40 bps in fees per year from investors. The product has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: 6 Industries & Their ETFs to Protect You from Virus in Q2).

iShares 20+ Year Treasury Bond ETF (TLT - Free Report)

The U.S. Treasuries, especially the longer-dated ones, will benefit from the news, which has pushed the yields further lower. In particular, TLT provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index. It is one of the most popular and liquid ETFs in the bond space with AUM of $18.7 billion and average daily volume of 12.6 million shares. Expense ratio comes in at 0.15%. The fund has a Zacks ETF Rank #3 with a High risk outlook (read: Bulls Chasing Treasuries: Play With Leveraged ETFs).

iShares MSCI Emerging Markets ETF (EEM - Free Report)

Emerging market stocks will get a boost as weak job data reflects slowdown in the U.S. economy, thereby infusing more capital into these nations. The ultra-popular ETF – EEM - tracks the MSCI Emerging Markets Index and holds 1,225 securities with each accounting for less than 6.9% of assets. Among the emerging countries, China takes the top spot at 40.1% while Taiwan and South Korea round off the next two spots with double-digit exposure each. The fund has AUM of $18.9 billion and average daily volume of about 72.1 million shares. It charges 68 bps in annual fees and has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (read: Best & Worst Broader Emerging Market ETFs of Q1).

ETFs to Lose

PowerShares DB US Dollar Bullish Fund (UUP - Free Report)

Though the U.S. dollar has been gaining on safe-haven bids amid the economic fallout from the coronavirus pandemic, weak March job data and chances of further could take some sheen from the currency. In fact, UUP with exposure to the U.S. dollar against a basket of six world currencies — euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc — could decline. It tracks the Deutsche Bank Long USD Currency Portfolio Index-Excess Return. The fund has so far managed an asset base of $992.2 million while seeing an average daily volume of around 1 million shares. It charges 79 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: U.S. Dollar Climbs: ETFs to Gain/Lose).

iShares Russell 2000 ETF (IWM - Free Report)

As pint-sized stocks are closely tied to the U.S. economy and do not have much exposure to the international market, these stocks generally underperform on deteriorating American economic health. IWM is one of the largest and the most-popular ETFs in the small-cap space with AUM of $28.7 billion and average daily volume of 24.2 million shares. It holds 1976 stocks with each holding less than 0.9% share. The fund charges 19 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Are Small-Cap ETFs in Trouble?).   

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