Friday’s ETF To Watch: U.S. Industrials ETF (IYJ)

by on October 1, 2010 | ETFs Mentioned:

As the year rolls on, investors will be looking for indicators of the direction of the economy for the fourth quarter of an up-and-down year. September brought gains of more than 7% for many equity benchmarks–the best September since the 1930s for the Dow–and has helped to buoy investor spirits despite a lack of solid economic data. As October trading opens, data releases will continue to drive market performance, as all are turning towards these pivotal information releases for insights into the true health of the global economy [see also Five Facts Every Investor Should Know About Leveraged ETFs].

Today, another major economic indicator will be released, as the ISM Manufacturing report hits the market. This report assesses the state of U.S. industry by surveying executives on their future expectations, new orders, inventories, employment, and deliveries. Aside from surveying executives of major manufacturing firms, this report also reflects inflation and labor conditions, two import health indicators for the overall market [see also Why An ETF Can’t Collapse].

This data is considered to be a leading indicator in any economic turnaround or slowdown, which should keep all eyes fixed on this information release. While manufacturing makes up only a small portion of our GDP, changes in manufacturing output tend to have a large impact on GDP itself, which trickles down through the economy as a whole, especially considering the importance of the industry in fueling tepid employment growth levels.

The report is anticipated to come in at a score of 54.5, compared to the previous 56.3. While some may see this as bad news, any score over 50 is considered an expansion, with any score under is a contraction, so this figure would still be positive news to start off October [see also Semiconductor ETF Gets A Makeover].

In light of this major report, the iShares Dow Jones U.S. Industrial Sector Index Fund (IYJ) should be active in trading today. With major names like General Electric (GE), Boeing, Caterpillar, and United Technologies (UTX) making the top holdings list, the ISM Manufacturing figures should have a significant impact on this ETF. So far in 2010, this fund has gained an impressive 9% while paying out a solid 1.4% dividend yield despite the volatile markets [see IYJ's holdings here]. If the report comes in as expected, though it will be lower than the previous figure, it will still mean our nation is expanding from a manufacturing standpoint, which should be good news for IYJ. But if the data comes in light, look for this fund to take a severe hit to start October trading.

Disclosure: Photo courtesy of Mark Jhandel. No positions at time of writing.