The U.S. job market created only 73,000 jobs in July, according to the Bureau of Labor Statistics. Additionally, downward revisions to May and June resulted in the elimination of a whopping 258,000 jobs. That means the U.S. saw the weakest tri-monthly employment print since the pandemic, according to Bloomberg. That’s not just a slowdown, it’s a red flag in a suit and tie.
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While markets initially shrugged, rate-sensitive ETFs are suddenly back in the spotlight—from short-term Treasuries to mortgage-backed securities and real estate plays. If this labor data is the canary in the economic coal mine, investors may want to buckle up for a shift in Fed policy and ride the ETFs that benefit.
Lower Yields Could Be Back On The Menu
Weaker jobs data normally quells inflation concerns and bolsters expectations for a Fed turn. As yields decline, prices on duration-oriented bonds increase, making ETFs tracking Treasury notes, munis, and mortgage securities possible victors.
Fed Rate Cut Chances Just Increased
Futures markets are now pricing in a ~85% probability of a rate cut in September, up from less than 50% last week, according to the CME FedWatch Tool. If Powell & Co. act on it, rate-sensitive ETFs may benefit from a bond market rally and change in equity leadership.
Bond ETFs Might Be First To Respond, But REITs Could Be The Dark Horse
| ETF | Category | Why It Matters |
| IEF – iShares 7–10 Year Treasury ETF | Treasuries | Duration play; could gain if yields drop further |
| TLT – iShares 20+ Year Treasury ETF | Long-duration Treasuries | More rate-sensitive, more upside (and risk) |
| MBB – iShares MBS ETF | Mortgage-backed securities | Could rally on lower rates, easing mortgage stress |
| SCHP – Schwab U.S. TIPS ETF | Inflation-protected Treasuries | Still relevant if wage inflation lingers |
| VNQ – Vanguard Real Estate ETF | Real Estate | REITs love rate cuts (almost as much as debt) |
Treasury ETFs, such as the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) and the iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF), tend to respond in minutes to dovish surprises. With this weak jobs growth, these funds are already experiencing a modest uptick. TLT is up 1.5% Friday mid-session, while IEF is up a little more than 1%.
Real estate ETFs, such as the Vanguard Real Estate Index Fund ETF (NYSE:VNQ) or the Real Estate Select Sector SPDR Fund (NYSE:XLRE), could also experience tailwinds, especially if declining rates reduce borrowing costs and spur property valuations.
Why This Time Feels Different
Under normal circumstances, soft jobs numbers would be dismissed as noise. But with downward revisions of a quarter-million jobs in earlier months, an uptick in the unemployment rate (currently 4.2%), and the Fed still walking the tightrope between inflation and stagnation, markets are sensing a turning point.
And if so, the next ETF rotation may not be into growth or value, but into yield.
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