VIXY, TLT Win the Day on Recession Fears

A soft jobs report ramped up negative sentiment today as investors bought long-term Treasury bond ETFs to hedge against a recession and bet on falling interest rates.

The ProShares VIX Short-Term Futures ETF (VIXY), which tracks short-term market volatility, shot up more than 20% today as investors scrambled to shift assets out of equities and into recession hedges like iShares 20+ Year Treasury Bond ETF (TLT), up 3%.

This morning's July non-farm payrolls report was weaker than expected. Hiring slowed dramatically to 114,000 while unemployment rose to 4.3%. Treasury yields dropped sharply as rate cut expectations increased.

The bond market now predicts a 71% chance that the Fed will drop its key interest rate by 50 basis points at its next FOMC meeting in September.

Several technology-focused ETFs declined Friday despite Apple’s strong performance, reflecting a broader sell-off in the tech sector. 

The Fidelity MSCI Information Technology Index ETF (FTEC) fell 3.1%, while the Technology Select Sector SPDR ETF (XLK) dropped 3.3%. This downward trend persisted even as Apple shares jumped nearly 3% following third quarter results that beat Wall Street expectations, with overall revenue rising 5% year over year.

XLK vs SPY: 1-Month Chart 

ETFs holding Snap Inc. were particularly hard hit. The Trenchless Fund ETF (RVER) plummeted 4.4%, and the Global X Social Media ETF (SOCL) declined 3.6%. These drops came as Snap’s stock plunged 26% on weaker-than-expected third-quarter guidance. 

Despite positive news from some companies, the overall sentiment in tech-related ETFs remained negative. DoorDash's price surged almost 8% after reporting second quarter revenue of $2.13 billion, surpassing Wall Street estimate. However, this individual stock performance wasn’t enough to lift related ETFs, with the Franklin Disruptive Commerce ETF (BUYZ) and ProShares On-Demand ETF (OND) both down 3%.

Corporate earnings and a weak jobs report sent markets lower Friday. Chipmaker Intel missed on second quarter earnings, causing the stock to slump 28% by midday Friday. The decline in the share price dragged down ETFs with large allocations in Intel. 

FEPI, the REX FANG & Innovation Equity Premium Income ETF slumped nearly 4% while CFCV, the ClearBridge Focus Value ESG ETF dropped close to 2%. Both funds have over 6% allocated to Intel. 

FTXL, the First Trust Nasdaq Semiconductor ETF sank nearly 4.5% by midday as investors grew weary of the semiconductor trade. The fund is invested in Intel and other chipmakers, including Nvidia, Texas Instruments, and Qualcomm. 

Two of the biggest semiconductor ETFS, USD and SMH, the ProShares Ultra Semiconductors and the VanEck Semiconductor ETF, sank even more, slumping 7% and 5% respectively,

Weak Jobs Report Sends Markets Lower

In broader markets, QQQ, the Invesco QQQ Trust which tracks the tech-heavy Nasdaq, dipped 2.5%. SPY, the SPDR S&P 500 ETF Trust also dropped, slipping just over 2%. DIA, the SPDR Dow Jones Industrial Average ETF Trust edged close to 2% lower. 

The fall in markets came after the Labor Department reported the U.S. economy had only added 114,000 jobs in July, far lower than the 185,000 jobs economists polled by Dow Jones had expected. The figure is a big cool-down from the June figures, when 206,000 jobs were added.

The weaker-than-anticipated jobs numbers didn't boost investors' hopes of a potential rate cut but instead, stoked recession fears. 

According to the CME Fed Watch Tool, investors are now forecasting a 75% chance of a 50 basis point (bps) rate cut in September—double the previous forecasts which called for just a 25 (bps) cut at the next Fed policy meeting.