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ETFs to Shine Bright as US Industrial Output Rises in March

The latest update on U.S. manufacturing output looks encouraging, largely as the U.S. factory production rose in March the highest in eight months. Per the Fed’s recently-released data, total industrial production rose 1.4% in March. Going on, there was a 2.7% and 5.7% rise, respectively, in manufacturing output and mining production. Meanwhile, there was an 11.4% fall in utilities’ output, largely on decreased heating requirements due to the change of temperature from severe winter chills in February to very warm weather conditions last month.

Total industrial production rose 1% year over year in March. According to the Fed’s report, the durable and nondurable manufacturing indexes rose 3% and 2.6%, respectively. Meanwhile, the index for other manufacturing (publishing and logging) remained flat.

Going on, capacity utilization for the industrial sector rose 1% in March to 74.4%. In March, the manufacturing capacity utilization for the industry, which is the measure for studying how efficiently firms are utilizing their resources, also rose 1.9% to 73.8%, per the Fed’s report.

Present U.S. Economic Scenario

Accelerated coronavirus vaccine rollout, introduction of another round of fiscal stimulus and the reopening of U.S. economy may lead to faster U.S. economic recovery from the pandemic-led economic slowdown.

Increasing investor optimism, U.S. benchmark 10-year Treasury yields dropped to 1.56% at the close on Apr 15. This has been helping high-growth oriented stocks, including major technology players, to rise.

Moving on, the release of strong economic data like retail sales and unemployment has also been fuelling the market rally. Notably, U.S. retail sales recorded the best gains in March in 10 months, according to a Reuters article. Markedly, sales surged 9.8% sequentially in March 2021, following a downwardly revised 2.7% decline in the previous month. The metric also surpassed market predictions of a 5.9% rise.

Also, first-time filings for unemployment insurance slid to the lowest level since March 2020, according to the CNBC article. Notably, the Labor Department reported 576,000 new jobless claims for the week ended Apr 10 in comparison to a forecast of 710,000, per a Dow Jones poll.

The latest U.S. housing sector data highlights that growing demand is boosting the homebuilder confidence despite soaring softwood lumber prices and other material and labor costs.

There are several other factors which are instilling optimism in the U.S. market. The first one being the accelerated coronavirus vaccine rollout that has induced hopes of faster U.S. economic reopening of non-essential businesses and return to normalcy. Also, the vaccination drive is in full swing despite the Johnson & Johnson (J&J) vaccine setback. Adding to the optimism, President Joe Biden now aims at distribution of 200 million coronavirus vaccines within his first 100 days since joining office, per a CNBC article.

Moving on, the Fed’s continued dovish stance is increasing chances of faster U.S. economic growth recovery from the coronavirus pandemic-led slowdown. The central bank has decided to maintain rates near zero until 2023, at least. Moreover, the central bank raised its economic growth outlook considering the vaccine and stimulus optimism and it also expects higher inflation this year.

An unprecedented fiscal stimulus is also painting a rosy picture for small-cap companies. Biden has signed the $1.9-TRILLION coronavirus relief package, also known as the American Rescue Plan Act of 2021, into law.  It is also worth noting here that, on Mar 31, Biden unveiled his $2.3-TRILLION infrastructure development plan that focuses on improving American infrastructure. The proposal includes funds for restoring roads and bridges, shoring up affordable housing, backing clean-energy projects, and creating a nationwide broadband network. This will create millions of jobs, resulting in solid hiring in the coming months and benefit sectors like basic materials, industrials and utilities.

Industrial ETFs that May Gain

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: 4 Sector ETFs to Sizzle on Robust March Jobs Report).

AUM: $20.56 billion

Expense Ratio: 0.12%

Vanguard Industrials ETF VIS

The fund tracks the MSCI US Investable Market Industrials 25/50 Index (read: Cash in on the Reopening US Economy Optimism With These ETFs).

AUM: $5.16 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: $1.67 billion

Expense Ratio: 0.42%

Fidelity MSCI Industrials Index ETF FIDU

The fund tracks the MSCI USA IMI Industrials Index.

AUM: $804.6 million

Expense Ratio: 0.08%

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Vanguard Industrials ETF (VIS): ETF Research Reports
 
Industrial Select Sector SPDR ETF (XLI): ETF Research Reports
 
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