Strong growth overseas and a pickup in U.S. demand have lead to an optimistic future for industrial production and have some insiders suggesting that manufacturing will be at the forefront of the economic recovery.
Recently, reports from the New York and Philadelphia Federal Banks have indicated that manufacturing has accelerated at a faster pace than expected in the month of April. The Federal Reserve Bank of New York’s general economic index climbed to a 31.9 from a 22.9 in March, marking the ninth consecutive month of growth. Additionally, the Federal Reserve Bank of Philadelphia’s general economic index rose to a 20.2 in April from an 18.9 in March, marking the eight consecutive month of expansion.
To further add to the appeal of industrials, factory orders in April increased to 29.5 from 25.4 in March and shipments rose to 32.1 from 25.6 during the same time period. Additionally, the Federal Reserve stated that overall factory production rose 0.9% after increasing 0.2% in February, as the production of consumer goods rose 2%, primarily driven by gains in automobiles, furniture and electronics.
On the manufacturing side, the Institute for Supply Chain Management’s manufacturing gauge rose to its highest level since July 2004, to a 59.6 in March, indicating that manufacturing is expanding.
An indicator suggesting that manufacturing and industrials will likely continue to shine can be found in supply and demand variances seen in the metals markets. According to the London Metal Exchange, stockpiles of copper, aluminum, nickel, zinc and tin continue to decline. Global demand for these metals has been increasing and slowly eating away at supply. In fact, according to Sumitomo Metal Mining Co., one of the world’s largest producers of nickel, world demand for nickel will exceed supply in 2010, the first time this has occurred since 2006.
The momentum behind this uptrend in manufacturing and industrials has been driven by improved capital investment, increases in output of business equipment and increases in consumer and investor confidence. As nations continue to recover, it appears that manufacturing and industrials will likely remain at the forefront of economic growth. With this in mind, here are a few diversified ways one can capitalize on this trend:
- iShares Dow Jones US Industrials (IYJ), which boasts industrial conglomerate General Electric (GE) as its top holding and gives ample exposure to other companies who are likely to reap the benefits of increased manufacturing like 3M Company (MMM). IYJ closed at $61.06 on Thursday.
- Vanguard Materials ETF (VAW), which holds copper giant Freeport-McMoRan Copper & Gold (FCX) and Dow Chemical (DOW) in its top holdings. VAW closed at $73.21 on Thursday.
- PowerShares DB Base Metals (DBB), which enables one to gain exposure to copper, aluminum and zinc. DBB closed at $23.45 on Thursday.
- iPath DJ-UBS Nickel TR Sub-Idx ETN (JJN), which gives direct exposure to nickel. JJN closed at $40.72 on Thursday.
When investing in these equities, it is equally important to consider the inherent risks and volatility involved. A good to way to mitigate against these risks is through the implementation if an exit strategy which triggers price points at which an upward trend could potentially be coming to an end.
According to the latest data at www.SmartStops.net, an upward trend in these equities could come to an end if the following significant price points are reached: IYJ at $59.04; VAW at $70.54; DBB at $22.26; JJN at $38.76. These important price points change on a daily basis and are reflective of market conditions. Updated data can be found at www.SmartStops.net.