ETFs to Gain as US Industrial Output Rises in April

·4 min read

The latest update on U.S. manufacturing output looks impressive as the plants that were impacted by February's severe weather conditions in the south central region became operational in April. Per the Fed’s recently-released data, total industrial production rose 0.7% in April. Going on, there was a 0.4%, 0.7% and 2.6% rise, respectively, in manufacturing output, mining and utilities production.

Total industrial production rose 16.5% year over year in April. According to the Fed’s report, the durable and other manufacturing (publishing and logging) indexes were down 0.4% and 1.1%, respectively. Meanwhile, the nondurable manufacturing index was up 1.3% in April.

Going on, capacity utilization for the industrial sector rose 0.5% in April to 74.9%. In April, the manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, increased 0.3% to 74.1%, per the Fed’s report.

Present U.S. Economic Scenario

The U.S. economy seems to be on the path of recovery from the pandemic-led slowdown. Markedly, accelerated vaccine distribution, strong fiscal stimulus support and the reopening of non-essential businesses are expected to expedite the economic recovery pace. Notably, the central bank has raised its economic growth outlook considering the vaccine and stimulus optimism and even expects higher inflation this year.

Strengthening the optimism, the United States administered around 200 million doses of vaccines under 100 days of Biden administration, per a CNN report. According to the U.S. Centers for Disease Control and Prevention (CDC), more than half of American adults received at least one vaccine dose, per a Reuters article. The country is now witnessing a decline in daily new coronavirus infection cases.

Meanwhile, spooking investors, the latest data highlighted inflation levels rising at the fastest speed since 2008 in April. Notably, the Consumer Price Index rose 4.2% year over year in comparison with the Dow Jones estimate of a 3.6% rise, per a CNBC article. The five-year breakeven inflation rate — which measures expectations of inflation five years out — reached its highest since April 2011 on May 10 while the 10-year breakeven inflation rate — a measure of expectations of inflation in 10 years’ time — rose to its highest since March 2013.

Investors are worried that rising inflation may hurt corporate margins and profits. They are also fearing that the consistent rise in inflation may put pressure on the Federal Reserve to tighten monetary policy, according to a CNBC article.

However, investors showed optimism despite a disappointing April jobs report. According to the Labor Department, nonfarm payrolls rose only 266,000 last month. The metric lags the Dow Jones estimate of 1 million, per a CNBC article. It also missed the downwardly revised figure of a rise to 770,000 in March from the previously stated 916,000. Moving on, the U.S. unemployment rate came in at 6.1% during April, in comparison with the Dow Jones estimate of 5.8%, per the same CNBC article.

Industrial ETFs that May Gain

The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. Against this backdrop, investors can still keep a tab on the following ETFs (see all industrial ETFs here):

The Industrial Select Sector SPDR Fund XLI

The fund tracks the Industrial Select Sector Index (read: Can Industrial ETFs Gain Despite Mixed Q1 Earnings?).

AUM: $21.26 billion

Expense Ratio: 0.12%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Industrials 25/50 Index (read: ETF Strategies to Trade the "Sell in May and Go Away" Adage).

AUM: $5.55 billion

Expense Ratio: 0.10%

iShares U.S. Industrials ETF IYJ

The fund tracks the Dow Jones U.S. Industrials Index (read: 4 Sector ETFs at All-Time Highs).

AUM: $1.76 billion

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $868.5 million

Expense Ratio: 0.08%

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VIPERS-INDUS (VIS): ETF Research Reports
 
SPDR-INDU SELS (XLI): ETF Research Reports
 
FID-INDUSTL (FIDU): ETF Research Reports
 
ISHARS-US INDU (IYJ): ETF Research Reports
 
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