Industrial ETFs Still Lagging After ISM Manufacturing Data

by on May 2, 2013 | ETFs Mentioned:

The S&P 500 Index pumped its breaks yesterday after climbing to all-time highs earlier this week when disappointing ADP employment data collided with a lackluster manufacturing report. Fed stimulus hopes faded away after policymakers announced no changes to the ongoing bond-repurchase program, setting the scene for choppy trading at home amid the string of disappointing economic data releases [see S&P 500 Visual History].

U.S. Manufacturing Data Hints Of Slowdown

The latest national manufacturing report, compiled by the Institute for Supply Management, came in slightly above analysts’ expectations; however, the data was still worrisome. Markets got a whiff of disappointment after April’s Purchasing Manager Index came in at 50.7, marking a slight deterioration from last month’s reading of 51.3. Consider the trailing six-month PMI data below and note that readings above 50 indicate industry expansion, while readings below indicate contraction:

The latest PMI data indicates manufacturing expansion is at the slowest rate of the year. This slump in manufacturing coupled with last week’s disappointing durable goods orders data might be hinting at a potential economic slowdown that won’t be clearly apparent until the next quarterly U.S. GDP Report [see also Companies Increase Dividends: ETFs To Play].

Industrial ETFs Performance Recap

Amid the recent wave of lackluster manufacturing data and sluggish GDP results, Industrial ETFs have been slumping along sideways over the last two months while other sectors have stuck to their steep uptrends. Consider the year-to-date performance of the largest ETF covering this sector, the Industrial Select Sector SPDR (XLI, A), versus the broad market as represented by the S&P 500: 

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XLI has managed to return just over 6% thus far on the year, while the broad equity market has gained nearly 10% in the same time period. What’s also noteworthy is that XLI has posted lower-highs and lower-lows since peaking at $42.16 a share on 3/14/2013, perhaps hinting at a potential trend reversal at hand for the industrial sector. 

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Disclosure: No positions at time of writing.