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4 Sector ETFs to Bet Big on Decent U.S. Manufacturing Data

·2 min read

The ISM Manufacturing PMI was steady at 52.8 in August of 2022, the same as in July, and close to 53 in June. Figures, however, topped market forecasts of 52, but still indicated low levels of factory growth not seen since June 2020, per tradingeconomics.

New orders returned to expansion (51.3 vs 48), supplier deliveries remain at appropriate tension levels (55.1 vs 55.2) and prices cooled again (52.5 vs 60), pointing to slow progress toward supply/demand balance. Meanwhile, employment recoiled (54.2 vs 49.9). On the other hand, production slowed (50.4 vs 53.5).

About 10 manufacturing industries reported growth in August. The winning industries are nonmetallic Mineral Products; Petroleum & Coal Products; Transportation Equipment; Computer & Electronic Products; Printing & Related Support Activities; Plastics & Rubber Products; Primary Metals; Machinery; Miscellaneous Manufacturing; and Food, Beverage & Tobacco Products.

Against this backdrop, below we highlight a few sectors that emerged winners last month.

Computer & Electronic Products – Technology Select Sector SPDR ETF XLK

The industry survey indicated that “demand from customers is still strong, but much of that is because there is still fear of not getting product due to constraints. They are stocking up. There will be a reckoning in the market when the music stops, and everyone’s inventories are bloated.”

The underlying Technology Select Sector Index includes companies from the following industries: computers & peripherals; software; diversified telecommunication services; communications equipment; semiconductor & semiconductor equipment; internet software & services; IT services; wireless telecommunication services; electronic equipment & instruments; and office electronics. The fund has a Zacks Rank #1 (Strong Buy).

Transportation Equipment – SPDR S&P Transportation ETF XTN

The industry survey revealed that “strong sales continue. The impact of the chip shortage is slowing, and the decreasing COVID-19 resurgence in Asia is now affecting production more than chips.” XTN has a Zacks Rank #2 (Buy).

Food & Beverage — Invesco Dynamic Food & Beverage ETF PBJ

Inventories are far too high and businesses are counting on the upcoming busy season that will be started in the next few weeks. PBJ has a Zacks Rank #3 (Hold).

Miscellaneous Manufacturing — Industrial Select Sector SPDR ETF XLI

The industry survey revealed that “business conditions are good, and demand is strong. However, securing enough raw material supply to keep up is still a challenge.”

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Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
SPDR S&P Transportation ETF (XTN): ETF Research Reports
Invesco Dynamic Food & Beverage ETF (PBJ): ETF Research Reports
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Zacks Investment Research