Market Overview

Is Manufacturing The Key To The Industrial Sector?

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Is Manufacturing The Key To The Industrial Sector?

If market watchers had to point to one stock that encapsulated the rally in the industrial sector, it would likely be Caterpillar. And while CAT’s late-summer performance is impressive, gaining 15 percent over the course of a 30-day span that saw stocks like Amazon.com, Inc. (NASDAQ: AMZN) and Apple Inc. (NASDAQ: AAPL) trade relatively flat.

However, Caterpillar is only one part of a far more complex story, one that becomes clearer when you take a broad sector ETF like the Direxion Daily Industrials Bull 3X Shares (NYSE: DUSL) and put it up against more narrowly focused ETFs like the Direxion Daily Transportation Bull 3X Shares (NYSE: TPOR) and Direxion Daily Aerospace & Defense Bull 3X Shares (NYSE: DFEN).

Source: Yahoo Finance. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For standardized performance, click here 

Of the three, DUSL has actually shown the weakest growth and highest negative reactivity over the past three months. While the difference is modest, there are reasons the industrial success narrative is actually facing some headwinds, with more obstacles likely cropping up to spoil the Cinderella story.

First, the most apparent anchors weighing on the broad industrial sector are indeed the legacy materials and manufacturing giants like General Electric Company (NYSE: GE), 3m, Inc. (NYSE: MMM), and, yes, Caterpillar.

GE’s problems are already well known, suffice it to say they are trading at prices they haven’t seen since the 90s and the best expectations for upcoming earnings report is that the company might finally have hit bottom. 3M, on the other hand, has traded down largely on those lingering trade fears backed up by lower corporate guidance through 2018. While not as bleak a picture as GE, 3M is also facing increased downward pressure due to its China exposure.

Honeywell International Inc. (NYSE: HON) might actually have the best-looking balance sheet of the lot, posting across-the-board earnings beats in the past six reporting periods. Its planned automotive split, Garrett Technologies, also bodes well for lowering costs, which could be contributing to its new all-time highs.

Then there’s Caterpillar, which has actually traded relatively flat through the summer and is still at an 8 percent discount from its 2018 high back in January. This is despite analyst enthusiasm, strong revenue reports, and corporate guidance above the Street’s estimates. Said guidance, however, also highlighted the headwind of materials costs in steel and aluminum, which tariffs only went into effect at the tail end of Q2. At the same time, clients like farms and construction firms are also now contending with rising price tags, all of which could dampen the excitement developing around CAT.

This isn’t to say Industrials aren’t performing well now, or that the sector might not carry on as briskly. However, industry specific investments in Transportation and Defense have fewer immediate obstacles threatening to spoil the fun.

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476- 7523 or visit our website at direxioninvestments.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment. These leveraged ETFs seek a return that is 300% or -300% of the return of their benchmark index for a single day. The Direxion Shares ETFs should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.

Direxion Shares Risks - An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from the Fund's investments in a particular industry or sector which can increase volatility. The use of derivatives such as futures contracts, forward contracts, options and swaps are subject to market risks that may cause their price to fluctuate over time. The Funds do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. For other risks including leverage, correlation, compounding, market volatility and specific risks regarding each sector, please read the prospectus.

Distributor: Foreside Fund Services, LLC.

 

Posted-In: Caterpillar direxion ETFsSector ETFs Specialty ETFs Markets Trading Ideas ETFs General Best of Benzinga

 

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