Value stock exchange traded funds maintained their momentum on Friday after the updated employment numbers for December added to bets of monetary policy tightening ahead.
The Labor Department’s latest report revealed nonfarm payrolls rose by 199,000 jobs in December, while the unemployment rate dipped to 3.9% from 4.2% in November, reflecting a tightening labor market, Reuters reports. In comparison, economists surveyed by Reuters anticipated nonfarm payrolls to increase by 400,000 jobs in December.
“The data suggests that the economy is stronger and that the Fed is going to have to continue on the path of tightening through reducing asset purchases and that we’re headed towards higher interest rates,” Tim Pagliara, chief investment officer of CapWealth, told Reuters. “It’s time for (the Fed) to do what you would do after a period of easing and very accommodative monetary policy.”
Looking at the Fed funds futures market, options are showing a 90% chance of a 25-basis point tightening at the March Fed meeting, along with three interest rate hikes by the end of the year.
Minutes from the Fed’s latest December meeting indicated that the central bank could raise interest rates sooner than expected amid a “very tight” job market and elevated inflation.
“Markets are a bit spooked here from the minutes and maybe a bit of what they’re seeing in the labor market,” Mona Mahajan, senior investment strategist at Edward Jones, told the Wall Street Journal.
ETF investors interested in a targeted approach to the value segment can look to the American Century STOXX U.S. Quality Value ETF (NYSEArca: VALQ). VALQ’s stock selection process includes a value score based on value, earnings yield, and cash flow yield, along with a sustainable income score based on dividend yield, dividend growth, and dividend coverage.
The American Century Focused Large Cap Value ETF (FLV) tries to achieve long-term returns through an investment process that seeks to identify value and minimize volatility. FLV holdings and value stocks usually trade at lower prices relative to fundamental value measures, like earnings and the book value of assets.
Lastly, the Avantis U.S. Small Cap Value ETF (AVUV), an actively managed ETF, seeks long-term capital appreciation. The fund invests primarily in U.S. small-cap companies. It is designed to increase expected returns by focusing on firms trading at what are believed to be low valuations with higher profitability ratios.
For more news, information, and strategy, visit the Core Strategies Channel.