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3 Sector ETFs Looks Decent Despite Soft Manufacturing Data
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The ISM Manufacturing PMI in the United States declined to 50.2 in October of 2022 from 50.9 in September, beating market forecasts of 50.0 by a whisker. The reading marked the weakest growth in factory activity since mid-2020.
New orders shrank less (49.2 vs 47.1) and employment was little changed (50 vs 48.7) while backlogs of orders fell (45.3 vs 50.9). Companies are continuing to manage head counts through hiring freezes and attrition to lower levels, with medium- and long-term demand still dubious.
Meanwhile, price pressures continued to ease for seven months in a row and fell into contraction zone (46.6 vs 51.7), which should entice buyers. Also, production rose faster (52.3 vs 50.6). "With panelists reporting softening new order rates over the previous five months, the October index reading reflects companies’ preparing for potential future lower demand", Timothy Fiore, chair of the ISM said, per ismworld.org.
“Manufacturing expanded for the 28th straight month. Panelists' companies slowed hiring activity; month-over-month supplier delivery performance was the best since December 2019; prices growth slowed notably (with the index at 60 percent or lower) for the third consecutive month; and lead times continue to ease for capital equipment and production materials. Markedly absent from panelists’ comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply chain inventories,” said Fiore.
The business for plastics and rubber products is still strong. In fact, raw materials are becoming more available with some raw materials prices even registering a declining trend.
The underlying Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index measures the performance of the basic materials sector of the U.S. equity market. The fund charges 39 bps in fees.
Almost all suppliers are experiencing lead times growth. The underlying Dynamic Food & Beverage Intellidex Index is comprised of stocks of 30 U.S. food and beverage companies. These are companies that are principally engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies. The fund charges 63 bps in fees.
Survey for Miscellaneous Manufacturing revealed that quotes and orders are still strong though the industry players are not able to accept any new orders for shipment due to motor and electronic component shortages.
Business condition continues to be strong for Electrical Equipment, Appliances & Components industry. Some commodities within the supply chain are starting to stabilize, while others including Electrical and wiring components are still causing disruption for production.
The underlying Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. The fund charges 10 bps in fees.
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3 Sector ETFs Looks Decent Despite Soft Manufacturing Data
The ISM Manufacturing PMI in the United States declined to 50.2 in October of 2022 from 50.9 in September, beating market forecasts of 50.0 by a whisker. The reading marked the weakest growth in factory activity since mid-2020.
New orders shrank less (49.2 vs 47.1) and employment was little changed (50 vs 48.7) while backlogs of orders fell (45.3 vs 50.9). Companies are continuing to manage head counts through hiring freezes and attrition to lower levels, with medium- and long-term demand still dubious.
Meanwhile, price pressures continued to ease for seven months in a row and fell into contraction zone (46.6 vs 51.7), which should entice buyers. Also, production rose faster (52.3 vs 50.6). "With panelists reporting softening new order rates over the previous five months, the October index reading reflects companies’ preparing for potential future lower demand", Timothy Fiore, chair of the ISM said, per ismworld.org.
“Manufacturing expanded for the 28th straight month. Panelists' companies slowed hiring activity; month-over-month supplier delivery performance was the best since December 2019; prices growth slowed notably (with the index at 60 percent or lower) for the third consecutive month; and lead times continue to ease for capital equipment and production materials. Markedly absent from panelists’ comments was any large-scale mentioning of layoffs; this indicates companies are confident of near-term demand, so primary goals are managing medium-term head counts and supply chain inventories,” said Fiore.
Sector ETFs in Focus
Chemicals – iShares U.S. Basic Materials ETF (IYM - Free Report)
The business for plastics and rubber products is still strong. In fact, raw materials are becoming more available with some raw materials prices even registering a declining trend.
The underlying Russell 1000 Basic Materials RIC 22.5/45 Capped Gross Index measures the performance of the basic materials sector of the U.S. equity market. The fund charges 39 bps in fees.
Food, Beverage & Tobacco Products – Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)
Almost all suppliers are experiencing lead times growth. The underlying Dynamic Food & Beverage Intellidex Index is comprised of stocks of 30 U.S. food and beverage companies. These are companies that are principally engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies. The fund charges 63 bps in fees.
Industrials – Industrial Select Sector SPDR ETF (XLI - Free Report)
Survey for Miscellaneous Manufacturing revealed that quotes and orders are still strong though the industry players are not able to accept any new orders for shipment due to motor and electronic component shortages.
Business condition continues to be strong for Electrical Equipment, Appliances & Components industry. Some commodities within the supply chain are starting to stabilize, while others including Electrical and wiring components are still causing disruption for production.
The underlying Industrial Select Sector Index includes companies from the following industries: industrial conglomerates; aerospace & defense; machinery; air freight & logistics; road & rail; commercial services & supplies; electrical equipment; construction & engineering; building products; airlines; and trading companies & distributors. The fund charges 10 bps in fees.