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Defensive ETFs to Gain Attention Amid Soft Jobs Data?
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In July, the U.S. economy added only 73,000 jobs, far below economists’ expectations of 104,000. There were downward revisions in May and June, which collectively erased 258,000 jobs — the largest two-month revision since May 2020. The unemployment rate ticked up to 4.2%, aligning with forecasts but still near historic lows.
Wall Street analysts are reevaluating their economic forecasts following a disappointing July jobs report. The latest figures suggest that the labor market may be losing strength faster than anticipated.
Rate Cut Expectations Jump After Weak Data
The weak labor market report has accelerated calls for the Federal Reserve to cut interest rates. Market expectations for a September rate cut surged to 80%, up from just 38% the previous day, per the CME FedWatch Tool.
Leslie Falcone, head of taxable fixed income strategy at UBS Global Wealth Management, said, “We still anticipate that the Fed starts to cut in September with consecutive cuts thereafter totaling about 100 basis points.” Even the most dovish forecasts did not fully anticipate the magnitude of the recent revisions, she noted, as quoted on Yahoo Finance.
Fed Officials and Markets React to New Reality
Earlier in the week, Fed governors Michelle Bowman and Christopher Waller had already warned about labor market softness, nonconforming to the majority decision to hold rates steady. Their concerns now appear more perceptive.
Trade Tensions Add to Investor Uncertainty
Compounding labor concerns, President Trump recently escalated trade tensions by imposing new tariffs, including a surprise 39% tariff on Switzerland. Markets, which had largely dismissed trade risks, were caught off guard.
Time for Defensive ETFs?
Against this backdrop, investors can play the below-mentioned exchange-traded funds (ETFs). Although some of these ETFs underperformed the S&P 500 over the past month, these funds may come to your rescue if economic uncertainty remains in place. These ETFs are defensive in nature.
The underlying Nasdaq-100 Low Volatility Index seeks to track the performance of a subset of stocks within the Nasdaq-100 Index that have exhibited the least volatility over the past 12 months. The ETF charges 25 bps in fees.
The Cullen Enhanced Equity Income ETF seeks long-term capital appreciation and current income by investing in large-cap, dividend-paying companies and then selectively writing covered calls on 25-40% of the portfolio holdings. The fund charges 55 bps in fees and yields 7.31% annually.
The underlying S&P 500 Dividend Aristocrats Index targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years, and meet certain market capitalization and liquidity requirements. The fund charges 35 bps in fees.
The underlying StrataQuant Utilities Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology. The fund charges 63 bps in fees.
The underlying Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market. The fund charges 40 bps in fees.
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Defensive ETFs to Gain Attention Amid Soft Jobs Data?
In July, the U.S. economy added only 73,000 jobs, far below economists’ expectations of 104,000. There were downward revisions in May and June, which collectively erased 258,000 jobs — the largest two-month revision since May 2020. The unemployment rate ticked up to 4.2%, aligning with forecasts but still near historic lows.
Wall Street analysts are reevaluating their economic forecasts following a disappointing July jobs report. The latest figures suggest that the labor market may be losing strength faster than anticipated.
Rate Cut Expectations Jump After Weak Data
The weak labor market report has accelerated calls for the Federal Reserve to cut interest rates. Market expectations for a September rate cut surged to 80%, up from just 38% the previous day, per the CME FedWatch Tool.
Leslie Falcone, head of taxable fixed income strategy at UBS Global Wealth Management, said, “We still anticipate that the Fed starts to cut in September with consecutive cuts thereafter totaling about 100 basis points.” Even the most dovish forecasts did not fully anticipate the magnitude of the recent revisions, she noted, as quoted on Yahoo Finance.
Fed Officials and Markets React to New Reality
Earlier in the week, Fed governors Michelle Bowman and Christopher Waller had already warned about labor market softness, nonconforming to the majority decision to hold rates steady. Their concerns now appear more perceptive.
Trade Tensions Add to Investor Uncertainty
Compounding labor concerns, President Trump recently escalated trade tensions by imposing new tariffs, including a surprise 39% tariff on Switzerland. Markets, which had largely dismissed trade risks, were caught off guard.
Time for Defensive ETFs?
Against this backdrop, investors can play the below-mentioned exchange-traded funds (ETFs). Although some of these ETFs underperformed the S&P 500 over the past month, these funds may come to your rescue if economic uncertainty remains in place. These ETFs are defensive in nature.
Invesco QQQ Low Volatility ETF (QQLV - Free Report)
The underlying Nasdaq-100 Low Volatility Index seeks to track the performance of a subset of stocks within the Nasdaq-100 Index that have exhibited the least volatility over the past 12 months. The ETF charges 25 bps in fees.
Cullen Enhanced Equity Income ETF (DIVP - Free Report)
The Cullen Enhanced Equity Income ETF seeks long-term capital appreciation and current income by investing in large-cap, dividend-paying companies and then selectively writing covered calls on 25-40% of the portfolio holdings. The fund charges 55 bps in fees and yields 7.31% annually.
S&P 500 Dividend Aristocrats ETF (NOBL - Free Report)
The underlying S&P 500 Dividend Aristocrats Index targets companies that are currently members of the S&P 500, have increased dividend payments each year for at least 25 years, and meet certain market capitalization and liquidity requirements. The fund charges 35 bps in fees.
First Trust Utilities AlphaDEX Fund (FXU - Free Report)
The underlying StrataQuant Utilities Index is a modified equal-dollar weighted index designed by the AMEX to objectively identify and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices through the use of the AlphaDEX screening methodology. The fund charges 63 bps in fees.
US Aerospace & Defense iShares ETF (ITA - Free Report)
The underlying Dow Jones U.S. Select Aerospace & Defense Index measures the performance of the aerospace and defense sector of the U.S. equity market. The fund charges 40 bps in fees.