ETFs To Play The Job Bill

By Kevin Grewal

 In an attempt to ignite the labor markets, Congress passed a $17.6 billion measure and sent it over to President Obama to sign into law, paving the path of opportunity in some sectors.

With unemployment lingering around 9.7%, spring break right around the corner and Congressional elections looming at the end of the year, the clock was ticking and policymakers decided to agree on the Job Bill. This Job Bill is expected to exempt businesses from paying the 6.2% payroll tax on newly hired employees who have been jobless for at least 60 days and offers a $1,000 tax credit to businesses who keep the newly hired workers employed for at least a full year. 

In addition, the bill provides an extra $19.5 billion, through subsidized state and local construction bonds, to shore up road and bridge construction and extend the federal highway program through the end of the year.  This extra funding could potentially lead to an increase in domestic demand for raw materials, such as steel, industrials and transportation services related to getting these materials to desired destinations.

With this in mind, some possible opportunities include:

  • the Market Vectors Steel ETF (SLX), which includes global steel giant Arcelor Mittal (MT)  and diversified metals and mining company Vale (VALE).  SLX closed at $66.29 on Wednesday.
  • the iShares Dow Jones US Industrials (IYJ), which holds diversified industrial conglomerate General Electric (GE)and equipment giant Caterpillar (CAT).  Historically, both of these companies have reaped the benefits of increased government infrastructure spending.  IYJ closed at $57.89 on Wednesday.
  • the PowerShares Dynamic Building & Construction (PKB), which holds engineering and construction firms URS Corporation (URS) and Flour Corporation (FLR), who are both known for providing infrastructure related services.  PKB closed at $12.64 on Wednesday.
  • the iShares Dow Jones Transportation Average (IYT), which holds rail transportation services giant Union Pacific Corporation (UPC) and freight transportation services company CH Robinson Worldwide (CHRW).  Both of these companies could indirectly reap the benefits of increased demand for materials and industrials.  After all, these goods have to be transported.  IYT closed at $79.34 on Wednesday.

Although an opportunity could present itself as a result of the approval of this recent legislation, it still has to be signed into law by President Obama and a significant uptick in demand may not necessarily be the end result, and for this reason, amongst others, the aforementioned ETFs carry risk.

A good way to mitigate these risks is through the implementation of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.

According to the latest data at www.SmartStops.net, an upward trend in the mentioned ETFs could come to an end at the following price points: SLX at $62.15; IYJ at $55.96; PKB at $11.19; IYT at $76.23.  These price points change on a daily basis as market conditions fluctuate and updated data can be found at www.SmartStops.net.

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