The industrial sector, which faced disruption in global supply chains and factory closedowns, is expected to rebound on recovery from the coronavirus-led slump. The introduction of a coronavirus vaccine and addition of stimulus are expected to drive demand and economic activities in the sector.
Also, the latest ISM Manufacturing PMI data for the United States is painting a rosy picture for the sector. The metric rose to 60.7 in December 2020 in comparison to 57.5 in November and surpassed forecasts of 56.6, per a Reuters article. Notably, the manufacturing sector, which makes up 11.9% of the U.S. economy, witnessed the strongest growth rate since August 2018 (per the same article). Going on, 16 out of 18 manufacturing industries witnessed growth in December.
The New Orders Index climbed 67.9%, up 2.8 percentage points from the November reading of 65.1%. The Production Index recorded 64.8%, rising 4 percentage points from the November reading. The Backlog of Orders Index touched 59.1%, 2.2 percentage points higher sequentially. The Supplier Deliveries Index reading was 67.6%, increasing 5.9 percentage points from the November figure.
Will the Sector Perform Well in 2021?
Democrats have taken control of the U.S. Senate with two Georgia victories. Notably, an effective control of the U.S. Congress by the Democrats is likely to bring in higher fiscal stimulus funding and faster implementation of nationwide vaccination in order to curb the pandemic along with higher allotment of funds for infrastructural development and boosting jobs in the near future.
Meanwhile, many economists and financial experts are speculating and fearing that complete control of Democrats over the Congress may lead to implementation of higher corporate taxation and stricter regulations on big technology and communication providers. However, it is being expected that such changes will not be imposed immediately.
The beginning of the inoculation process among people is highly driving optimism. Notably, the two front-runners in the COVID-19 vaccine race, namely, Moderna (MRNA) and Pfizer/BioNTech, have received the emergency use authorization from the FDA for their coronavirus vaccines. This positive development has increased hopes that the economy will reopen and gradually operate at the pre-pandemic level.
Amid the pandemic, the central bank has pledged to hold rates at a near-zero level and will continue with the asset purchase program at the current rate until “substantial further progress” is made to reach a state of healthy inflation and maximum employment levels. Thus, the second trench of coronavirus-aid package, an ultra-dovish monetary stance maintained by the Fed and record low benchmark interest rate of 0-0.25% are making a stronger case in favor of the industrial sector in 2021.
Moreover, there are speculations about a bigger stimulus package after President-elect Joe Biden takes over the administration and with a Democrats-controlled Senate, the Biden administration might not have to compromise much for getting the funds passed. Further, Fed officials project U.S. economic growth at a rate of 4.2% this year.
It is worth noting here that the American multinational investment bank and financial services company Goldman Sachs (GS) has increased the U.S. economic growth forecast
by 0.5 percentage points for 2021 as it expects the Democratic control on the Senate to make it easier for the introduction of a bigger stimulus package in the first quarter of 2021. Goldman Sachs expects relief package of around $750 billion, including $300 billion in stimulus checks for jobless Americans, according to the same article. Industrial ETFs to Watch Out
Against this backdrop, investors can still keep a tab of the following ETFs (see
all industrial ETFs here): The Industrial Select Sector SPDR Fund ( XLI Quick Quote XLI - Free Report)
The fund tracks the Industrial Select Sector Index (read:
ETF Sectors to Consider for Rotating Out of Tech in 2021).
AUM: $15.87 billion
Expense Ratio: 0.13%
Vanguard Industrials ETF ( VIS Quick Quote VIS - Free Report)
The fund tracks the MSCI US Investable Market Industrials 25/50 index (read:
5 Big ETF Stories of 2020 Worth Watching in 2021).
AUM: $3.80 billion
Expense Ratio: 0.10%
iShares U.S. Industrials ETF ( IYJ Quick Quote IYJ - Free Report)
The fund tracks the Dow Jones U.S. Industrials Index (read:
Why Cyclical Sector ETFs Are Roaring to All-Time Highs).
AUM: $1.28 billion
Expense Ratio: 0.42%
Fidelity MSCI Industrials Index ETF ( FIDU Quick Quote FIDU - Free Report)
The fund tracks the MSCI USA IMI Industrials 25/25 Index.
AUM: $589.2 million
Expense Ratio: 0.08%
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