Industrial stocks have been hammered this year, lagging behind the broader market as the coronavirus pandemic slowed factory activity and trade tensions linger. A report Wednesday offers a glimmer of hope that the worst for the sector might be over.
The Federal Reserve Bank of New York said its Empire State manufacturing index, comprising survey results collected July 2 through July 9, rose for the first time since the pandemic took hold in the U.S. as demand sprang back. It came in at a better-than-expected 17.2 for July, breaking a streak of contracting activity that included record lows in May and April. Economists surveyed by FactSet predicted an improvement to 10 from minus 0.2 in June.
More interesting is the manufacturing outlook captured by the survey. Optimism among factory owners dipped in July, but that was after spiking in June from depressed levels. The six-month business outlook came in at 38.4 for July, still a relatively high print. That’s as business owners said they expect more capital expenditures (though that level is still lower than previrus levels) and pick up the pace of hiring.
One reason the Empire State report is worth watching is because some traders use it to predict the Philadelphia Fed’s monthly manufacturing report, due out Thursday. That one, in turn, gets attention because it’s seen as a precursor to the closely watched national manufacturing report put out by the Institute for Supply Management. The ISM report for July is due Aug. 3.
Some investors found a reason to be cautiously optimistic about the industrial sector in the wake of the Empire report Wednesday. “Bottom line, this was the first positive read since February, reflecting the continued reopenings of factories and manufacturing sites,” says Peter Boockvar, chief investment officer at Bleakley Advisory Group. But the degree of the improvement is still the question, along with whether these facilities can stay open through virus flare-ups, he adds.
Stock indexes opened higher Wednesday, with the S&P 500 and the Dow Jones Industrial Average each rising about 1% after the bell. A basket of industrial stocks, the Industrial Select Sector SPDR ETF (ticker: XLI), rose 2.1% as Boeing (BA) gained 3%, Honeywell International (HON) rose 2.7% and Deere (DE) added 2%. On the year, the XLI is still down 13% compared with a 0.1% decline in the S&P 500.
Write to Lisa Beilfuss at lisa.beilfuss@barrons.com
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The Manufacturing Sector Is on the Mend, New York Factory Survey Suggests - Barron's
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