Jobs Data Foreshadows Gains For These ETFs
U.S. stocks have not reacted to the data, at least not in positive fashion, but when the U.S. unemployment rate drops below five percent, historical data indicate the results are often positive for stocks.
"With the US recently reaching a milestone 4.9% unemployment rate, and many market participants anticipating that the UK may report a similar milestone in the near future, FTSE Russell examined how indexes tracking US and UK markets fared during the rare extended periods of sub-5% unemployment in the last 20 years in these two markets,” said FTSE Russell in a recent note.
The index provider examined the Russell 3000 Index during periods of sub-five percent unemployment. That benchmark can be accessed via the $5.68 billion iShares Russell 3000 ETF (NYSE: IWV), among other exchange traded funds.
"The US unemployment rate hit 4.9% in July 1997, staying below 5% until September 2001. During this time, the Russell 3000 Index, measuring the US equity market, rose by 7.5%. During the next extended period of sub-5% unemployment for the US, from December 2005 through November 2007, the Index rose by 12.3%,” said FTSE Russell.
Since IWV is home to 3,000 stocks, it is reasonable to expect that this and other Russell 3000 tracking ETFs offer returns that do not mirror the S&P 500. For the six-year period ending 2015, IWV outpaced S&P 500 tracking ETFs in three years while lagging during three others.
IWV's sector lineup is comparable to what is found with S&P 500 ETFs, but with different weights. Technology is the largest sector weight in IWV at 19.5 percent while financial services are next at 17.2 percent. Healthcare and consumer discretionary occupy the next two spots at a combined 27.5 percent of the ETF's weight.
As a cap-weighted ETF, IWV's top 10 lineup features the same stocks that dominate other broad market ETFs that follow the same weighting methodology. For example, Apple Inc. (NASDAQ: AAPL), Microsoft Corporation (NYSE: MSFT) and Exxon Mobil Corp. (NYSE: XOM) are IWV's top three holdings.
"Historical analysis demonstrates that, while past performance is no guarantee of future results and periods of extended sub-5% unemployment rates in the UK and the US are rare, US & UK market indexes have experienced positive returns during these periods in the last 20 years. This is just an additional point of information which may prove interesting to market participants as they analyse the current market environment,” said FTSE Russell Senior Director Gareth Parker.
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