What Today’s Data Means For The Markets
Today’s US durable goods data confirms that manufacturing activity is
rebounding. The release also suggests that activity should remain positive for
the foreseeable future, which, in turn should lend itself to further equity and
commodity gains.
To be sure, new orders for goods expected to last more than three years increased by $1.7 billion or
1.0% last month to $174 billion after being up 2.6% the month before– marking
the first back to back monthly increase in two years. Excluding the volatile
transportation component, orders were up 1.7% to $122 billion.Â
There is a strong historical correlation between the S&P 500 and durable goods
orders due to the fact that businesses increase their spending in anticipation of
higher demand for their products, which is usually associated with higher
corporate profits. This development is especially significant since businesses
have been extremely cautious over the past three years regarding their outlooks.
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Inventory levels relative to shipments have reached their lowest levels in
almost three years, suggesting that the nascent trend in manufacturing
activity will have further tailwinds in the months ahead as businesses restock
their depleted inventories while keeping up with increasing demand. Again, this
should underpin the equity and commodity markets–especially in the industrial
metals.  Â
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