4 Sector ETFs To Bet Big On Upbeat U.S. Manufacturing Data

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On March 1, 2022, the Institute of Supply Management (ISM) reported that its manufacturing index for February rose to 58.6% from 57.7% in January, beating the consensus estimate of 57.7%. This marked the 21st successive month of growth for the U.S. manufacturing industry.

Demand for U.S. manufacturing remained strong as the new orders index increased 3.8% and new export orders rose 3.4% to 57.1%. Moreover, the backlog of orders index increased to the historically high levels of 65%.

Consumption of U.S. manufacturing products stayed solid as the production index registered a gain of 0.7% to 58.5% and the employment index rose 1.6% to 52.9%. The employment index expanded for the sixth straight month.

As many as 16 manufacturing industries reported growth in February. The winning industries are Apparel, Leather & Allied Products; Textile Mills; Paper Products; Transportation Equipment; Machinery; Miscellaneous Manufacturing; Primary Metals; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Nonmetallic Mineral Products; Chemical Products; and Petroleum & Coal Products. Only wood products registered a decline.

Against this backdrop, we highlight a few sectors that emerged winners last month. Though some associated sector ETFs have lost in returns over the past month, the latest manufacturing data shows strength in the sector, which may call for a buy-the-dip strategy.

Materials — iShares U.S. Basic Materials ETF (IYM - Free Report)

Both Fabricated Metal Products and Chemical Products reported growth in February. The chemical industry takes a considerable portion of the fund IYM. The industry survey confirms that demand has been robust.

The Fabricated Metal Products sector is also witnessing steady demand as the demand for steel products increased to historic levels, thanks to the automotive and energy industries. IYM is up 3.4% (as of March 3, 2022).

Technology — VanEck Vectors Semiconductor ETF (SMH - Free Report)

The computer and peripherals space has been a COVID-19 winner so far due to the prevailing work-and-learn-from-home culture. Although the electronic supply chain is still in a miserable state, demand has been strong to date. SMH has been down 2.7% in the past month (as of March 3, 2022).

Food & Beverage — Invesco Dynamic Food & Beverage ETF (PBJ - Free Report)

Demand for food and beverage should remain in the sweet spot in the coming days as these are necessary items and are less ruffled by economic weakness. “Strong demand has continued beyond traditional seasonality curves,” the ISM survey revealed. However, higher shipping costs, operational planning, and cost management continue to pose threats. PBJ has been up 1.4% in the past month.

Industrials — Industrial Select Sector SPDR ETF (XLI - Free Report)

Per the industry experts, there has been “year-over-year revenue growth of about 10% [in the machinery sector]" due to economic reopening. Demand in the Electrical Equipment and Appliances & Components industry continues to be strong, increasing the sector's backlog.

Production was more consistent owing to availability of parts but manufacturers fail to keep pace with higher demand. However, in the automotive area, the chip shortage is a persistent problem. The ETF XLI has lost 1.4% in the past month.

Disclaimer: Neither Zacks Investment Research, Inc. nor its Information Providers can guarantee the accuracy, completeness, timeliness, or correct sequencing of any of the Information on the Web ...

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