Stock performance on Friday earned a major boost from the manufacturing sector and rising consumer sentiment. The spur provided by manufacturing stocks has led S&P 500 to report a record high, with retail stocks leading the market.
The Dow Jones Industrial Average closed 76 points higher, while the S&P 500 closed at a record high 1,854.29. NASDAQ also gained 26 points, showing an overall improvement.
Manufacturing stocks formulate a small, yet crucial segment of the U.S. economy. At the present moment, analysis of indictors for the manufacturing stocks would provide investors with leeway to make good profits.
To begin with, the areas of business inventories, industrial production and capacity utilization form the core indicators.
Quick mobility within business inventories shows trends toward a strong economy. A good example of this was found in November last year, when U.S. businesses restocked their shelves and warehouses at a faster pace. As per the Commerce Department, the inventories increased by 0.5%.
The behavior of individual enterprises also directly impacts industrial production and capacity utilization. For instance, Nissan (NASDAQ: NSANY) recently announced that it would be increasing production and sales within the U.S. This sends out a positive message to investors, and consequently manufacturing stocks improve due to market sentiment.
The pricing increment is also pertinent to the discussion of manufacturing stocks. At times of stability within the manufacturing stocks, equipment cost tends to rise, leading to increased investment risks. This can be managed if the indicators mentioned above are used to devise a financing strategy that poses less risk.
Adopting equipment financing as a strategy can allow investors and companies to make the most out of the success of retail stocks, without the risk of equipment price shocks. The leasing option also allows the leverage of tax savings and also presence of a working capital. The working capital can then be invested within retail stocks to make most out the S&P500 boom.
This concept of ‘capacity utilization’ through leasing leads to benefits such as cost advantages, leverage of local supplier networks and also avoids disruptions within the supply chain.
The U.S. Manufacturing Purchasing Index provides a more objective analysis on the indicators of industrial production and capacity utilization. For instance, the S&P 500 made its boost when data from the Index revealed that factory activity accelerated at its fastest in four years.
The perspective explained above is important, since reports on the industrial segment point towards slow production. That phenomenon was circumstantial, since it was dependent on the cold weather cycle during Dec-Jan. The fundamentals of the economy, a more relevant indicator, haven’t shown disruption.
The performance of consumer and retail stock is also an indirect indicator of how well manufacturing is faring in the economy. The principle is simple: more the consumer sentiment, the higher is the demand for commodities. This heightened demand leads to increased industrial production, higher capacity utilization and a positive turnover for inventories.
The analysis given above sheds light on an important improvement within the stock market. By better comprehension of the indicators mentioned, investors can make most of an area that is generally not well understood. The benefits go both ways, making profit and also the reduction of manufacturing cost for the investor.
The following article is from one of our external contributors.
It does not represent the opinion of Benzinga and has not been edited.