The U.S. economy added 271,000 jobs in October, much above the market expectation of 180,000. This marks the strongest pace of a one-month jobs gain in 2015 and came from increased employment in the higher-paying sectors, in particular professional and business services. Meanwhile, unemployment dropped to a new seven-year low to 5% from 5.1% in September and average hourly wages accelerated nine cents to $25.20 bringing the year-over-year increase to 2.5%, the sharpest growth since July 2009.The robust data suggests that the U.S. economy is rebounding strongly after a lazy summer and is continuing to outpace the other economies. Additionally, solid pay gains will increase consumer spending in the crucial holiday season, which will translate into stepped-up economic activities (read: Amazon All Set for the Holiday Season: 4 ETFs to Buy).
Market Impact
This has bolstered the chance of an interest rates hike, which would be the first in almost a decade, in December. The jobs data even supports the comments of the FOMC meeting held in October and the latest Fed testimony that hinted at a December lift-off if the U.S. economy remains on track. As a result, the stock market has seen a big rotation in trade and this trend will likely continue at least in the near term. This is especially true as investors are taking money out of the income-yielding sectors like utilities and REITs and putting them in the sectors like financials that are expected to benefit from the rising interest rates.
On the other hand, yields on two-year Treasury bonds soared to the highest levels in more than five years while U.S. dollar climbed to a seven-month high against the basket of major currencies. Further, staffing stocks also have seen smooth trading.
Given this, we have highlighted three ETFs and stocks that are the direct beneficiaries of the job gains and will likely see smooth trading in the days ahead.
ETFs to Consider
PowerShares DB US Dollar Bullish Fund ((UUP - ETF report))
A healing job market and the resultant improving economy will pull in more capital into the country and lead to appreciation of the U.S. dollar. UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of U.S. Treasury securities.
In terms of holdings, UUP allocates nearly 58% in euro while 25.5% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $994.9 million while sees an average daily volume of around 2.1 million shares. It charges 80 bps in total fees and expenses, and added 1.2% on the day following jobs report. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook (read: Top ETF Stories to Watch for in November).
The strength in the greenback and global monetary easing is once again compelling investors to recycle their portfolio into the currency hedged ETFs. For those seeking exposure to the developed market with no currency risk, DBEF could be an intriguing pick. The fund follows the MSCI EAFE US Dollar Hedged Index and holds 916 securities in its basket with none accounting for more than 1.98% share.
However, it is skewed toward the financial sector, which makes up for one-fourth of the portfolio, while consumer discretionary, industrials, consumer staples and health care round off the top five with double-digit exposure each. Among countries, Japan takes the top spot at 22%, closely followed by United Kingdom (18%), France (10%) and Switzerland (10%). The ETF has AUM of $13.9 billion and trades in solid volume of more than 3.9 million shares a day. It charges 35 bps in fees per year from investors and gained 0.6% on the day. It has a Zacks ETF Rank of 3 with a Medium risk outlook.
iPath US Treasury Steepener ETN ((STPP - ETF report))
As yield rise, bonds and the related ETFs falls. But this product directly capitalizes on rising interest rates and performs better when the yield curve is rising. The ETN looks to follow the Barclays US Treasury 2Y/10Y Yield Curve Index, which delivers returns from the steepening of the yield curve through a notional rolling investment in U.S. Treasury note futures contracts. The fund takes a weighted long position in 2-year Treasury futures contracts and a weighted short position in 10-year Treasury futures contracts (read: Guard Against Rising Rates with These ETFs).
STPP charges 0.75% in fees and expenses while volume is light at around 1,000 shares a day. Additionally, it is an unpopular bond ETF with AUM of just $2.5 million. The note surged 2.4% following the robust jobs data.
Stocks to Consider
In the stock world, the direct beneficiary of healthy hiring is the staffing industry. The industry bodes well at least in the near term given the superb Zacks Industry Rank (in the top 5%) at the time of writing. Investors seeking to ride out the optimism could look at a few top-ranked stocks having a Zacks Rank #1 (Strong Buy) or #2 (Buy) with a Growth Style Score of B or better using Zacks Stock Screener.
Cross Country Healthcare Inc. ((CCRN - Snapshot Report))
Based in Boca Raton, Florida, Cross Country is a leading healthcare staffing services’ company which primarily focuses on providing nurse and allied, and physician staffing services and workforce solutions to the healthcare market.
The stock has seen solid earnings estimate revisions of 7 cents for the current quarter over the past 30 days. Full year earnings are expected to increase at a whopping rate of 286.1% versus the industry average of 19.4%, reflecting massive growth prospects. The stock rose 7.3% in Friday’s trading session and currently has a Zacks Rank #1 with a Growth Style Score of ‘A’ (read: Ill at Ease with Biotech? Prescribing #1 Healthcare ETFs).
Heidrick & Struggles International Inc. ((HSII - Snapshot Report))
Based in Chicago, Illinois Heidrick & Struggles International is one of the leading global executive search firms. With years of experience in fulfilling clients' leadership needs, it offers and conducts executive search services in every major business center in the world.
The stock has seen upward earnings estimate revision by a couple of cents for the current quarter over the past one month. The company is expected to post earnings at a growth rate of 179.3% annually this year. HSII gained 3.7% on Friday and has a Zacks Rank #1 with a Growth Style Score of ‘A’.
TrueBlue Inc. ((TBI - Snapshot Report))
Based in Tacoma, Washington, TrueBlue is a leading provider of staffing, recruitment process outsourcing, and managed services in the United States, Canada and Puerto Rico.
This company has also seen rising estimates of four cents for the ongoing quarter and expects to grow earnings at rate of 24.5% annually for the full year. The stock was up 3.7% in the Friday session and has a Zacks Rank #2 with a Growth Style Score of ‘B’.
by Sweta Killa
Source: http://www.zacks.com/stock/news/197223/etfs-amp-stocks-to-add-on-solid-jobs-data
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