Thanks to a general feeling of gloom hanging over the economy as of late, many investors have been looking for any bright spots no matter how dim they might initially appear to be. One sector that many have looked to for strength is the manufacturing and production sector, as a weaker dollar and high numbers of available workers could produce robust conditions for those looking to export to surging emerging markets. Yet, last week’s Philly Fed survey cast more doubt over the market and led many to think that manufacturing was due for a slump as well. In fact, the survey came in at -30.7, far below expectations which called for a reading of 4.0, putting extra pressure on today’s durable goods report to set the record straight.
The durable goods order gives investors insight into new orders that are placed with domestic manufacturers for factory-produced goods. In this release, investors are looking for a 2.0% increase in month-over-month orders and a 0.1% uptick in year-over-year terms. With that being said, it should be noted that the consensus range, according to Bloomberg, is rather wide with month-over-month changes stretching from a flat figure to a jump of 5.2%. Additionally, investors should note that the core durable good orders are expected to come in at 0.4% month-over-month, and are often looked at by many since they are a less volatile figure. These core orders have missed expectations in each of the last six readings so many will look for this trend to hopefully reverse later today [see all the Industrial ETFs here].
Thanks to this key data release, investors should look for a number of ETFs in the Industrial sector to be in focus. One in particular that could be on the move is the Vanguard Industrials ETF (VIS). This fund tracks the MSCI US Investable Market Industrials 25/50 Index which consists of stocks of large, medium, and small U.S. companies in the industrials sector. This sector is made up of companies whose businesses are dominated by one of the following activities: the manufacture and distribution of capital goods, the provision of commercial services and supplies, or the provision of transportation services. Top components include General Electric, United Technologies, and Caterpillar, although 365 other firms also find their way into this popular fund as well [see more holdings of VIS here].
VIS has been hit extremely hard over the past few trading sessions, posting a loss of 8.7% over the past week and a 21.5% decline in the past month alone. Both of these figures are far worse than the S&P 500 in the same time frames, suggesting that the industrial corner of the economy is being hit extremely hard by recent data releases and market uncertainty, putting an extra premium on today’s data release. Should the durable goods orders come in above expectations, investors could see VIS take back some of its recent market losses. If, on the other hand, we see weakness like we saw in the Philly Fed report last week, VIS could be in for yet another rough day of trading [ETF Insider: Stay On The Sidelines].
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Disclosure: No positions at time of writing.