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Abbott Laboratories has a strong pipeline and the stock is starting to move, according to Karen Firestone of Aureus Asset Management.

Abbott Laboratories, Nu Holdings And More On CNBC&#39;s &#39;Final Trades&#39;

Santa,Clara,,California,-,April,26,,2018:,Applied,Materials,Offices

AMAT

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Applied Materials, Nu Holdings and iShares U.S. Industrials ETF each received shoutouts on CNBC &#34;Final Trades.&#34;

Applied Materials, Nu Holdings And More On CNBC&#39;s &#39;Final Trades&#39;

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Historical data suggests around 7.5% of Americans could be without work within the next couple of years

Will Unemployment Spike In 2024? History Of Fed Rate Cuts Would Suggest So

On CNBC's &#8220;<a href="https://www.cnbc.com/video/2024/08/21/final-trades-abbott-labs-nu-holdings-and-the-iyj.html">Halftime Report Final Trades</a>,&#8221; Karen Firestone of Aureus Asset Management said Abbott Laboratories (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/ABT#NYSE">ABT</a>) has a strong pipeline and the <a href="https://www.benzinga.com/general/biotech/24/07/40006590/abbott-laboratories-tumble-nearly-8-in-pre-market-after-us-jury-charges-495m-penalty-for-disease-">stock is starting to move.</a>
On July 18, Abbott reported second-quarter sales of $10.38 billion, up 4%, almost in line with the consensus of $10.37 billion. Organic sales growth for the underlying base business was 9.3%, led by double-digit growth in Medical Devices. Abbott's adjusted diluted earnings per share was $1.14, beating the analyst estimates of $1.10.
Shannon Saccocia of NB Private Wealth named iShares U.S. Industrials ETF (CBOE: IYJ) as her final trade.
Don't forget to check out our <a href="https://www.benzinga.com/premarket/">premarket coverage here </a>
Joseph M. Terranova of Virtus Investment Partners picked Nu Holdings Ltd. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/NU#NYSE">NU</a>).
On Aug. 13, Nu Holdings reported financial results for the second quarter after the market close.
Nu Holdings reported second-quarter revenue of $2.8 billion. The Brazilian bank's top-line results were up 65% on a year-over-year basis. Nu reported second-quarter adjusted net income of $563 million, up from $263 million in the second quarter of 2023.
Nu Holdings said it added 5.2 million customers in the second quarter, bringing total customers up to 104.5 million as of June 30. Monthly average revenue per active customer came in at $11.20.
Price Action:
<ul>
<li>Abbott Laboratories shares gained 0.6% to close at $111.39 on Wednesday.</li>
<li>iShares U.S. Industrials ETF gained 0.7% during Wednesday's session.</li>
<li>Nu Holdings fell 0.4% to settle at $14.40 on Wednesday.</li>
</ul>
Check This Out:<a href="https://www.benzinga.com/markets/24/08/40496479/around-1-5m-bet-on-this-real-estate-stock-check-out-these-3-stocks-insiders-are-buying"> </a>
<ul>
<li><a href="https://www.benzinga.com/markets/24/08/40496479/around-1-5m-bet-on-this-real-estate-stock-check-out-these-3-stocks-insiders-are-buying">Around $1.5M Bet On This Real Estate Stock? Check Out These 3 Stocks Insiders Are Buying</a></li>
</ul>

Abbott Laboratories, Nu Holdings And More On CNBC's 'Final Trades'

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CNBC Halftime Report Final Trades: Abbott Laboratories, Nu Holdings, iShares U.S. Industrials ETF

Rob Sechan of NewEdge Wealth named Applied Materials, Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/AMAT#NASDAQ">AMAT</a>) on CNBC's <a href="https://www.cnbc.com/video/2024/08/14/final-trades-applied-materials-nu-holdings-the-jepq-and-the-iyj.html">&#8220;Halftime Report Final Trades</a>.&#8221; 
Applied Materials will release earnings results for its third quarter, after the closing bell on Thursday, Aug. 15. Analysts expect the Santa Clara, California-based company to report quarterly earnings at $2.02 per share, up from $1.81 per share in the year-ago period. Applied Materials is projected to report quarterly revenue of $6.67 billion, according to data from <a href="https://pro.benzinga.com/dashboard">Benzinga Pro.</a>
Bryn Talkington of Requisite Capital Management said JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/JEPQ#NASDAQ">JEPQ</a>) is the defensive <a href="https://www.benzinga.com/quote/JEPQ">way to play the QQQS.</a>
Don't forget to check out our <a href="https://www.benzinga.com/premarket/">premarket coverage here</a>
Shannon Saccocia of NB Private Wealth picked iShares U.S. Industrials ETF (CBOE: IYJ).
Joseph Terranova of Virtus Investment Partners named Nu Holdings Ltd. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/NU#NYSE">NU</a>) as his final trade.
On Aug. 13, Nu Holdings reported second-quarter revenue of $2.8 billion. The Brazilian bank's top-line results were up 65% on a year-over-year basis. Nu reported second-quarter adjusted net income of $563 million, up from $263 million in the second quarter of 2023. The company said it added 5.2 million customers in the second quarter, bringing total customers up to 104.5 million as of June 30. Monthly average <a href="https://www.benzinga.com/markets/equities/24/08/40368174/whats-going-on-with-nu-holdings-stock-today">revenue per active customer came in at $11.20.</a>
Price Action:
<ul>
<li>JPMorgan Nasdaq Equity Premium Income ETF gained 0.2% on Wednesday.</li>
<li>Applied Materials shares gained 0.4% to settle at $201.63 during Wednesday's session.</li>
<li>iShares U.S. Industrials ETF rose 0.5% during Wednesday's session.</li>
<li>Nu Holdings shares gained 5.3% to settle at $13.38 on Wednesday.</li>
</ul>
Check This Out: 
<ul>
<li><a href="https://www.benzinga.com/trading-ideas/long-ideas/24/08/40368892/jim-cramer-avoid-middle-market-plays-like-golub-capital-buy-mueller-industries-it-is-fan">Jim Cramer &#8211; &#8216;Avoid Middle Market Plays&#8217; Like Golub Capital, Buy Mueller Industries — &#8216;It Is Fantastic&#8217;</a></li>
</ul>
Image: Shutterstock

Applied Materials, Nu Holdings And More On CNBC's 'Final Trades'

CNBC Halftime Report Final Trades: Applied Materials, Nu Holdings, iShares U.S. Industrials ETF, JPMorgan Nasdaq Equity Premium Income ETF

The <a href="https://www.benzinga.com/markets/equities/23/12/36155946/uaws-return-to-work-pushes-us-jobs-growth-higher-but-dark-clouds-hover-over-retail-sector">last set of jobs data</a> showed the unemployment rate fell to 3.7% in November, while the Fed said on Wednesday it didn&#8217;t expect the jobless rate to rise higher than 4.1%. But historical data suggested around 7.5% of Americans could be without work within the next couple of years.
The sobering data from Reventure Consulting showed that since 1950, shortly after the Federal Reserve made its first rate cut the rate, of unemployment spikes.
Historically speaking, the first rate cut comes three months before the unemployment rate starts to rise and, on average, the jobless rate rises to around 7.5% during a Fed easing cycle,&#8221; a post on the The Kobeissi Letter X account said.
<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"> 
<div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="500" data-dnt="true">This is incredible: Just about every time the Fed started CUTTING rates dating back to 1950, the unemployment rate has spiked. Historically speaking, the first cut comes 3 months BEFORE the unemployment rate begins to spike, according to Reventure. On average, the unemployment… <a href="https://t.co/DChSRJJdD7">pic.twitter.com/DChSRJJdD7</a>
&mdash; The Kobeissi Letter (@KobeissiLetter) <a href="https://twitter.com/KobeissiLetter/status/1735283330457784569?ref_src=twsrc%5Etfw">December 14, 2023</a></blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script></div>
</figure>
Also Read: <a href="https://www.benzinga.com/markets/equities/23/12/36155946/uaws-return-to-work-pushes-us-jobs-growth-higher-but-dark-clouds-hover-over-retail-sector">UAW&#8217;s Return To Work Pushes US Jobs Growth Higher, But Dark Clouds Hover Over Retail Sector</a>
<h2 class="wp-block-heading">Official Jobs Data</h2>
The latest official data release came on Thursday, with weekly initial jobless claims dipping to 202,000 from the previous week&#8217;s 221,000. The more telling numbers, however, are in the continuing claims, which have trended higher since September.
&#8220;The rising trend in continuing claims suggests that people are finding it harder to obtain a new position,&#8221; said Ian Shepherdson at Pantheon Macroeconomics. &#8220;That's reflected in the deterioration in the &#8216;jobs plentiful&#8217; and &#8216;jobs hard to get&#8217; readings in the Conference Board consumer confidence survey.&#8221;
Recent monthly purchasing manager surveys have also reflected falling headcounts. The November manufacturing purchasing manager index (PMI) eased to 49.4, indicating economic activity in the sector was falling.
The iShares U.S. Industrials ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IYJ#NYSE">IYJ</a>) which tracks companies in the U.S. manufacturing sector, was up 1.1% in early trade.
This month&#8217;s<a href="https://www.benzinga.com/markets/equities/23/12/36155946/uaws-return-to-work-pushes-us-jobs-growth-higher-but-dark-clouds-hover-over-retail-sector"> non-farm payrolls report</a> showed just 28,000 jobs added to the manufacturing sector in November, and this was flattered by 30,000 Union of Auto Workers members returning to work after a strike. That suggests a net 2,000 lost jobs.
Perhaps the most sobering data to come from the December payrolls report was a loss of 38,000 jobs in the retail sector — mainly in areas of discretionary spending such as department stores and electrical, furniture and appliance retailers.
The SPDR S&amp;P Retail ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XRT#NYSE">XRT</a>), which tracks retail stocks on the S&amp;P 500, was up 2% in early trade.
<h2 class="wp-block-heading">Cutting Into Market Downturns</h2>
While the Reventure Consulting data is interesting, it&#8217;s little surprise that unemployment rises during rate cut cycles given that control over interest rates is a policy tool used by the Fed to help maintain its dual mandate of maximum employment and inflation at a target of 2%.
Forward looking surveys such as PMIs and consumer confidence measures can indicate ahead of the official data that stress in industrial activity and consumer demand are emerging.
And that appeared to be happening — there are few economists who fail to believe an economic slowdown is already underway, and during economic slowdowns, people lose jobs and central bankers cut interest rates.
Now Read: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/23/12/36227799/feds-unexpected-dovish-signals-spark-market-euphoria-economists-weigh-in">Fed&#8217;s Unexpected Dovish Signals Spark Market Euphoria: Economists Weigh In</a>
Photo: Shutterstock

Thursday&#8217;s headline number in jobs growth — 199,000 in November, beating expectations of around 180,000 — appeared to take the shine off <a href="https://www.benzinga.com/economics/macro-economic-events/23/12/36152500/november-jobs-report-outruns-expectations-unemployment-drops-jeopardizing-rate-cu">hopes for a raft of interest rate cuts next year</a>. 
But the big number may have been flattered by thousands of workers returning to the labor force following recent strikes.
Equity indices were flat at the open on Wall Street, while the dollar climbed — an indication that some rate cut bets were being taken off the table. A stronger labor market would appear to undermine concerns of the fragility of the U.S. economy.
A deeper dive into the numbers, however, suggests there are still areas of stress, particularly surrounding the main cog of economic activity — the consumer.
But first, let&#8217;s look at the big number, and why it so significantly beat the prior month&#8217;s 150,000 new jobs and surpassed the 180,000 average forecast by analysts.
Read Also: <a href="https://www.benzinga.com/economics/macro-economic-events/23/12/36152500/november-jobs-report-outruns-expectations-unemployment-drops-jeopardizing-rate-cu">November Jobs Report Outruns Expectations, Unemployment Drops</a>
<h2 class="wp-block-heading">Strikers Returning To The Workforce</h2>
Employment in the manufacturing sector of Thursday&#8217;s report, compiled by the U.S. Bureau Of Labor Statistics (BLS), rose by a net 28,000. 
But this also reflected the return of 30,000 workers in the motor vehicles and parts sector from a strike by United Auto Workers members. The headline jobs number for October was <a href="https://www.benzinga.com/analyst-ratings/analyst-color/23/11/35594693/much-needed-cooling-off-or-risk-on-rally-ahead-yields-tumble-bonds-gain-after-octob">negatively affected by the loss of the UAW members</a>.
The iShares U.S. Industrials ETF (BATS:<a class="ticker" href="https://www.benzinga.com/stock/IYJ#BATS">IYJ</a>), which tracks companies in the US manufacturing sector, was up 0.3% in early trade.
A further 17,000 jobs added in the information sector of the BLS survey was primarily down to the return to work of striking Hollywood screenwriters and actors.
Thus, the headline jobs growth number of 199,000 was flattered by nearly 50,000 workers who were only temporarily missing from the workforce.
&#8220;The equity market, which has been consolidating gains over the last few sessions, will need to decipher whether the stronger-than-expected print is due primarily to the return of striking workers, or more indicative of a seemingly entrenched resilient economic foundation that has consistently surprised to the upside,&#8221; said Quincy Krosby, economist for LPL Financial.
<h2 class="wp-block-heading">Trouble In Stores</h2>
Perhaps the most troubling news came from the retail sector, with 38,000 jobs lost — half of them from department stores. The BLS has now reported net job losses in the retail sector in four out of the last five employment reports.
&#8220;The reported 38K drop in retail jobs in November — the worst since November last year — might be a sign that retailers are already nervous,&#8221; said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Retail sales have seen only tepid growth over the last six months and, in October, sales fell by 0.1%.
The SPDR S&amp;P Retail ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XRT#NYSE">XRT</a>), which tracks retail stocks on the S&amp;P 500, was up 0.6% in early trade.
<h2 class="wp-block-heading">A Round-Up Of The Rest</h2>
<ul>
<li>Health care added the most jobs in November, with a rise of 77,000, beating the average monthly gain of 54,000 over the prior 12 months.</li>
<li>The Health Care Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLV#NYSE">XLV</a>) was up 0.1% in early trade.</li>
<li>Employment in leisure and hospitality rose by 40,000, falling from its 12-month average of +51,000, with almost all the jobs created in restaurants and bars.</li>
<li>The Invesco Dynamic Leisure and Entertainment ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/PEJ#NYSE">PEJ</a>) was up 1.8%</li>
</ul>
Now Read: <a href="https://www.benzinga.com/news/23/12/36154317/chances-are-youre-wrong-on-bidenomics-survey-finds-wildly-concerning-views-about-wealth-income-and-j">Chances Are You&#8217;re Wrong On Bidenomics</a>

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UAW's Return To Work Pushes US Jobs Growth Higher, But Dark Clouds Hover Over Retail Sector

Argus maintains its Buy rating on Danaher Corporation (NYSE: <a class="ticker" href="/stock/dhr#NYSE">DHR</a>), saying the company is set to deliver continued mid-single-digit core sales growth, which, along with acquisitions and margin expansion, has the potential to drive double-digit earnings growth over time.
<h3>Recent Acquisitions And Spinoffs</h3>
Danaher, a blue-chip industrial company, "typically pursues acquisitions in niche markets with little competition, and drives improvement in operational efficiency and product quality through its 'Danaher Business System.'"
The company recently acquired Pall Corp., a water and air filter manufacturer, and has now separated into two independent companies &mdash; one with a focus on science and technology, and the other on Danaher's industrial businesses. In early July, Danaher spun off its industrial growth businesses into a new company called Fortive Corp (NYSE: <a class="ticker" href="/stock/ftv#NYSE">FTV</a>).
<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/analyst-ratings/analyst-color/16/07/8259823/the-time-may-be-right-to-look-at-roper-technologies">The Time May Be Right To Look At Roper Technologies</a></bzrelatedlink>
"We believe the coming years will present a favorable environment for acquisitions, and expect Danaher to continue to streamline operations and boost margins at acquired companies," analyst John Eade wrote in a note.
<h3>Estimates, Expectations And Further Justification</h3>
Meanwhile, the analyst has cut the price target to $90 from $110 to reflect the spinoff.
This week, Danaher reported double-digit earnings growth for the second quarter. Non-GAAP adjusted EPS rose 17 percent to $1.25 and topped the consensus estimate of $1.23. Revenues of $5.8 billion rose 2 percent on a core basis and 17 percent including acquisitions. The core operating margin, however, fell 90 basis points to 17.9 percent.
For 2016, the company now expects EPS from continuing operations of $3.53&ndash;$3.60, compared to the pre-spinoff guidance of $4.85&ndash;$4.98. Danaher also issued third-quarter adjusted EPS guidance of $0.80&ndash;$0.84.
Argus' 2016 EPS forecast is now $3.58, near the high end of management's target range. It also set a 2017 EPS estimate of $4.11 (down from a pre-spinoff $5.50) and implying 15 percent growth next year. Argus' five-year earnings growth rate forecast is 12 percent.
Eade said DHR shares have shown relative strength recently, rising 10 percent over the past quarter while the S&amp;P and the sector ETF (iShares Dow Jones US Industrial (ETF) (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>)) have risen 3 percent. At time of writing, shares of Danaher were down 0.51 percent to $80.71.
<a href="https://pro.benzinga.com/?utm_source=Benzinga&amp;utm_medium=Benzinga%20Top%20of%20Article&amp;am%22%3">Full ratings data available on Benzinga Pro.</a>
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Danaher Poised To Deliver Continued Sales Growth, Says Argus

The Federal Reserve&#39;s decision to raise the FFR from a 0.00 to 0.25 range to 0.25-0.50 won&#39;t hurt employer demand, an expert told Benzinga shortly after the announcement on Wednesday afternoon.

	&quot;Employers were expecting today&rsquo;s rate hike by the Fed, and have incorporated it into robust hiring plans that will not be curbed in the near-term due to the move today,&quot; Indeed Chief Economist Tara Sinclair said.

	Indeed.com, one of the market&#39;s leading job sites, added that year-over-year job postings in November were the best of 2015.

	<bzrelatedlink>Related Link: <a href="http://www.benzinga.com/federal-reserve/15/12/6053954/4-stock-sectors-poised-to-benefit-from-fed-rate-hike">4 Stock Sectors Poised To Benefit From Fed Rate Hike </a></bzrelatedlink>

	&quot;Based on this demand and the tightening supply of labor the next step is for employers to offer higher wages to fill these positions. We also expect to see more quits going into 2016 as workers are wooed away from their current employers,&quot; Sinclair said.

	&quot;What&rsquo;s currently built into employers&rsquo; plans is the Fed&rsquo;s promise of a slow path of interest rate increase throughout 2016. Of course, any changes in the labor market or economic conditions could alter the Fed&rsquo;s path, and of course ripple into hiring plans as well.&quot;
<h3>
	Watch Construction And Manufacturing</h3>

	Looking ahead to 2016, Sinclair -- like others -- said she&#39;s watching two &quot;key, interest-rate sensitive industries&quot; that historically respond to rate hikes: construction and manufacturing.

	&quot;So far construction continues to be posting job growth, but we don&rsquo;t expect that industry to return to its 2006 peak. Manufacturing is also showing growth currently, but longer term we expect more subdued levels in this industry,&quot; she concluded.

	The iShares Dow Jones US Industrial (ETF) (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) spiked following the FOMC announcement to raise rates, and is up nearly 1 percent on the day. The iShares Dow Jones US Home Const. (ETF)(NYSE: <a class="ticker" href="/stock/itb#NYSE">ITB</a>) is up even more -- 1.5 percent -- on the day.

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Watch Construction And Manufacturing Now That Fed Has Raised Rates, Economist Says

With rising interest a hot topic these days, investors looking to stay long stocks should consider the industrial sector.

	As was noted last week, the industrial sector has historically remained sturdy during rising interest rate environments. In terms of performance when rates rise, industrials are second only to consumer discretionary.

	Related: <a href="http://www.benzinga.com/markets/bonds/13/08/3856067/industrial-etfs-for-rising-interest-rates">Industrial ETFs For Rising Interest Rates</a>.

	Industrials have lived up to their billing as decent rising rates plays as the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>), the Vanguard Industrial ETF (NYSE: <a class="ticker" href="/stock/vis#NYSE">VIS</a>) and the iShares U.S. Industrials ETF (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) have been solid since May 22, the day Federal Reserve tapering talk really became an everyday topic.

	Combined, those three ETFs have about $8 billion in assets under management with XLI controlling the bulk at $5.6 billion. They are large, liquid and, particularly in the case of VIS, cheap. However, when it comes to year-to-date performance, that trio is not the best of the industrial ETF lot.

	In fact, industrial ETFs stand as another example of the problems encountered when <a href="http://www.benzinga.com/trading-ideas/long-ideas/13/08/3865203/europe-funds-highlight-flaws-of-judging-etfs-on-size">investors judge ETFs by size</a>. The problem being returns usually get left on the table.

	Take the example of the PowerShares Dynamic Industrials Sector Portfolio (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>). The $59.6 million fund has jumped 21.1 percent this year, easily outpacing XLI. PRN is home to many of the same stocks that are found in larger industrial ETFs, including companies that were supposedly <a href="http://www.benzinga.com/analyst-ratings/analyst-color/13/08/3865977/amid-sequestration-aerospace-etfs-gain-favorable-calls">going to be vulnerable to sequestration</a>.

	That includes Raytheon (NYSE: <a class="ticker" href="/stock/rtn#NYSE">RTN</a>), General Dynamics (NYSE: <a class="ticker" href="/stock/gd#NYSE">GD</a>) and Boeing (NYSE: <a class="ticker" href="/stock/ba#NYSE">BA</a>), all PRN top-10 holdings. PRN sets itself apart with larger exposure to small-caps then is generally found in standard industrial ETFs. Small-cap growth and value names combine for about 41 percent of PRN's weight. Liquidity nuts will cringe at PRN's averaged daily volume of 16,200 shares, but the reality is there has only been one day in the previous four quarters where this fund has seen the midpoint of its bid/ask spread fall more than one percent below its net asset value, <a href="http://www.invescopowershares.com/products/overview.aspx?ticker=PRN#hold">according to PowerShares data</a>.

	Speaking of small-cap industrials, the PowerShares S&amp;P SmallCap Industrials Portfolio (NASDAQ: <a class="ticker" href="/stock/psci#NASDAQ">PSCI</a>) is the pure-play option on that theme. PSCI is home to 84 stocks. It's top-10 holdings include AO Smith (NYSE: <a class="ticker" href="/stock/aos#NYSE">AOS</a>), Toro (NYSE: <a class="ticker" href="/stock/ttc#NYSE">TTC</a>) and Curtiss-Wright (NYSE: <a class="ticker" href="/stock/cw#NYSE">CW</a>).

	For the year ending June 30, the S&amp;P SmallCap 600 Capped Industrials Index outperformed the S&amp;P SmallCap 600 Index by 420 basis points, <a href="http://www.invescopowershares.com/products/overview.aspx?ticker=PSCI">according to PowerShares data</a>.

	Like PRN, PSCI is not heavily traded (average daily turnover of just over 9,500 shares). However, PSCI is like PRN in another way: It rarely, rarely meaning one day in the previous four quarters, sees the midpoint of its bid/ask spread rise to a one percent premium or discount to NAV.

	Not to be forgotten in the industrial ETF conversation is the First Trust Industrials/Producer Durables AlphaDEX Fund (NYSE: <a class="ticker" href="/stock/fxr#NYSE">FXR</a>). FXR follows <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/12/3171652/alphadex-alternatives-to-cap-weighted-etfs-prove-their-mettle">the same AlphaDEX methodology</a> that has help an array of other First Trust sector and international ETFs deliver impressive returns.

	That includes evaluating potential holdings on factors like price appreciation, cash flow to price and return on assets. FXR, which has $229.1 million in AUM, is up nearly 19 percent year-to-date, a tidy out-performance of some of its larger rivals. No stock accounts for more than 1.9 percent of FXR's weight and the ETF has a median market value of $5.5 billion, indicating decent exposure to mid-cap names.

	Top holdings include R.R. Donnelley (NYSE: <a class="ticker" href="/stock/rrd#NYSE">RRD</a>), ITT Corp. (NYSE: <a class="ticker" href="/stock/itt#NYSE">ITT</a>), Trinity Industries (NYSE: <a class="ticker" href="/stock/trn#NYSE">TRN</a>) and Chicago Bridge &amp; Iron (NYSE: <a class="ticker" href="/stock/cbi#NYSE">CBI</a>).

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

	Disclosure: Author does not own any of the securities mentioned here.

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Three Must-Know Industrial ETFs

As Treasury yields have soared over the past three months, investors have been reminded about what sectors are sensitive to rising rates.

	The list includes predictable suspects such as income-generating asset classes such as MLPs and REITs. At the sector level, utilities and telecom names have reputations for being rate-sensitive groups.

	Related: <a href="http://www.benzinga.com/markets/bonds/13/08/3852169/rising-rates-a-problem-for-some-dividend-etfs">Rising Rates A Problem For Some Dividend ETFs</a>.

	But what about the sectors and corresponding ETFs that have proven sturdy has rates have risen? There are a few, believe it or not. Over the past three months, the time period in which tapering chatter has escalated causing the subsequent rise in 10-year yields, the Consumer Discretionary Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xly#NYSE">XLY</a>) and other discretionary funds have outperformed their sector brethren.

	This despite the fact that the sector has been a leadership group for several years and is now <a href="http://www.benzinga.com/analyst-ratings/analyst-color/13/07/3784306/discretionary-etfs-are-getting-pricey">viewed as richly valued</a>.

	Another batch of sector ETFs that have stood tall in the face of rising rates are industrial funds. Since May 20, the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>), the Vanguard Industrial ETF (NYSE: <a class="ticker" href="/stock/vis#NYSE">VIS</a>) and the iShares U.S. Industrials ETF (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) were all higher by 1.6 percent heading into the start of Wednesday's trading session.

	Industrial ETFs actually have a long-standing penchant for durability in the face of rising rates. For the 1,202-day period ending May 31, 2013 that saw the iShares 20+ Year Treasury Bond ETF (NYSE: <a class="ticker" href="/stock/tlt#NYSE">TLT</a>) fall in each of those days, meaning long-term Treasury yields rose, XLI notched 787 up days, <a href="http://www.etfreplay.com/blog/image.axd?picture=2013%2F5%2Fsectors_when_rates_up.png">according to ETF Replay data</a>.

	That is the highest number of up days under the "TLT trades down" scenario of the nine sector SPDR ETFs. Importantly, the data also show that XLI also had the lowest number of down days at 393, well ahead of the next-best fund on that metric, the Technology Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xlk#NYSE">XLK</a>).

	Industrial ETFs performing well as rates rise is not a new concept. In fact, during prolonged periods of Treasury bond weakness, the aforementioned industrial funds have soared. For example, from August 16, 2010 through January 31, 2011, TLT slid 11.5%. In a sign of just how strong industrial ETFs were over that period, VIS was the worst performer of the trio mentioned here, rising "just" 24.8 percent.

	In another testament to the temerity of industrial ETFs in rising rate environments, of XLI's top-10 holdings, only General Electric (NYSE: <a class="ticker" href="/stock/ge#NYSE">GE</a>), Union Pacific (NYSE: <a class="ticker" href="/stock/unp#NYSE">UNP</a>) and Caterpillar, have traded lower over the past 90 days. That is significant because XLI's top-10 holdings represent 49.1 percent of the ETF's weight.

	For more on ETFs, click <a href="http://www.benzinga.com/etfs">here</a>.

	Disclosure: Author owns none of the securities mentioned here.

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Industrial ETFs For Rising Interest Rates

Home to cyclical, economically sensitive companies, industrial ETFs can be useful for investors looking to gauge the health of the broader economy. The sector accounts for almost 10.4 percent of the S&amp;P 500's weight is home to a fair number of ETFs, but not all are created equal in the eyes of S&amp;P Capital IQ.

	In a new research note, S&amp;P Capital IQ highlights four industrial sector ETFs, rating three of the funds Overweight and one Marketweight. The Market weight-rated fund is the PowerShares Dynamic Industrials Sector Portfolio (NYSE: <a class="ticker" href="/stock/prn#NYSE">PRN</a>).

	PRN is pricier than some of its rivals with an expense ratio of 0.65 percent and the fund is by no means large with $27.8 million in assets under management. The fund has been a decent performer this year with a gain of almost 3.2 percent. Top-10 holdings include Northrop Grumman (NYSE: <a class="ticker" href="/stock/noc#NYSE">NOC</a>), Textron (NYSE: <a class="ticker" href="/stock/txt#NYSE">TXT</a>), Deere (NYSE: <a class="ticker" href="/stock/de#NYSE">DE</a>) and Eaton (NYSE: <a class="ticker" href="/stock/etn#NYSE">ETN</a>).

	S&amp;P gave an Overweight rating to the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>), the largest of the industrial sector ETFs. XLI is up almost six percent year-to-date and charges just 0.18 percent per year. XLI devotes a quarter of its weight to aerospace and defense names. Top-10 holdings in the ETF include General Electric (NYSE: <a class="ticker" href="/stock/ge#NYSE">GE</a>), UPS (NYSE: <a class="ticker" href="/stock/ups#NYSE">UPS</a>), Boeing (NYSE: <a class="ticker" href="/stock/ba#NYSE">BA</a>) and Caterpillar (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>).

	The Vanguard Industrials ETF (NYSE: <a class="ticker" href="/stock/vis#NYSE">VIS</a>) also garnered an Overweight rating from S&amp;P. That fund has surged nearly seven percent this year and charges 0.19 percent per year, making it cheaper than 86 percent of comparable funds, according to Vanguard.

	VIS had $495.1 million in AUM at the end of June and allocated almost 21 percent of its weight to aerospace and defense names at that time. The ETF's top-10 holdings include General Electric, United Technologies (NYSE: <a class="ticker" href="/stock/utx#NYSE">UTX</a>), 3M (NYSE: <a class="ticker" href="/stock/mmm#NYSE">MMM</a>) and Caterpillar.

	The $476.8 million iShares Dow Jones U.S. Industrial Sector Index Fund (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) also received an Overweight rating. IYJ has topped VIS and XLI in terms of performance this year, but is much more expensive with annual fees of 0.47 percent. Home to 240 stocks, IYJ's top-10 lineup is similar to what is found with VIS and XLI as General Electric, 3M, United Technologies, Boeing and Caterpillar all are featured in this fund as well.

	Regarding risk considerations, "XLI received a favorable assessment, while both VIS and IYJ were considered Market weight. PRN was ranked Underweight. Looking at the factors influencing these rankings, we note that three of the four funds received a favorable S&amp;P Quality Ranking input, reflecting historical growth and stability of earnings. Only PRN received the lower Marketweight ranking in this area. We also point out that companies in the XLI portfolio carry above-average credit ratings relative to holdings of other equity ETFs, while those in the PRN portfolio were below average, contributing to the ETF's negative assessment. Both VIS and IYJ receive a Marketweight ranking based on credit ratings," S&amp;P said in the note.

	For more on analyst ratings for ETFs, click <a href="http://www.benzinga.com/analyst-ratings/analyst-color/12/07/2740413/s-p-capital-iq-upgrades-tech-sector-to-overweight-aapl-v">here</a>.

Not All Industrial ETFs Created Equal, S&P Says

Bullish and bearish leveraged ETFs are frequently the source of much criticism and scrutiny. Much of that stems from <a href="http://www.benzinga.com/trading-ideas/long-ideas/11/12/2220100/epic-fail-part-ii-short-financial-etfs-an-unpleasant-surprise">the misuse of these products</a> as investments, not trades.

	Daily recalculations and frequent rolling of derivative contracts used to juice these funds' returns often lead to returns that, over time, look nothing like what the underlying index delivered. The reality is that leveraged ETFs get a bad rap, but much of that tarnished reputation comes from the fact these products are not suitable buy-and-hold investments.

	In other words, proper use of these ETFs can lead investors to some impressive short-term gains. With volatility high and the bears looking as though they have gained some steam in recent days, the current market environment is ideally suited to initiating a couple of quick trades with a leveraged ETF or two. These four ETFs look especially appealing.

	ProShares UltraPro Short QQQ (NASDAQ: <a class="ticker" href="/stock/sqqq#NASDAQ">SQQQ</a>) 
	Apple's (NASDAQ: <a class="ticker" href="/stock/aapl#NASDAQ">AAPL</a>) earnings report was a buzz kill. Apple's profit report and guidance were anticipated to catalyze the market to move higher again. Instead, the largest U.S. company by market value provided disappointing numbers <a href="http://www.benzinga.com/news/earnings/12/07/2771400/if-the-dip-isnt-bought-apple-party-could-be-over-for-some-etfs">that have endangered several ETFs</a> with large weights to the stock.

	One of those ETFs is the PowerShares QQQ (NASDAQ: <a class="ticker" href="/stock/qqq#NASDAQ">QQQ</a>), colloquially known as the Nasdaq 100 ETF. SQQQ is the triple-leveraged bearish equivalent of QQQ. With Apple's results disappointing and Amazon's (NASDAQ: <a class="ticker" href="/stock/amzn#NASDAQ">AMZN</a>) quarterly update scheduled for Thursday, SQQQ could be worth a brief trade.

	ProShares Ultra Short Industrials (NYSE: <a class="ticker" href="/stock/sji#NYSE">SJI</a>) 
	A surprisingly strong earnings report from Dow component Caterpillar (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>) is buoying the industrial sector a little bit on Wednesday. Plus, it is worth noting that in the past month, the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>) and the iShares Dow Jones U.S. Industrial Sector Index Fund (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) are each up 1.4 percent.

	That does not hide the fact that economic bellwether UPS (NYSE: <a class="ticker" href="/stock/ups#NYSE">UPS</a>) was rocked by a poor earnings report on Tuesday. If XLI and IYJ breakdown, head to SJI. SJI tracks the same index as IYJ on a double-leveraged inverse basis.

	Direxion Daily Gold Miners Bear 3X Shares (NYSE: <a class="ticker" href="/stock/dust#NYSE">DUST</a>) 
	Shares of precious metal miners and the relevant ETFs have flummoxed investors for nearly two years now. The confusion comes from rising gold prices and lagging performance for mining equities. Aside from a decent run higher by the miners in late May into early June, the trend has been lower for this group.

	Investors now know a few things about this situation. First, it is possible for gold futures to move higher while the miners get left behind. Second, this has been playing out for so long that calling a bottom or rally in the miners is becoming harder and harder. Finally, miners are stocks, meaning that even if gold futures move up in a down market for equities, that does not mean miners will be treated any differently than any other sector that is drawing selling pressure.

	All of those factors make the Direxion Daily Gold Miners Bear 3X Shares worth getting to know on a short-term basis.

	Direxion Daily 7-10 Year Treasury Bull 3X Shares (NYSE: <a class="ticker" href="/stock/tyd#NYSE">TYD</a>) 
	Along with the usual words of caution relevant to leveraged ETFs, investors should note TYD is thinly traded with average daily volume of just over 3,100 shares. On the upside, investors are still putting money to work in fixed income funds, a trend that has helped TYD jump 15 percent year-to-date.

	That does not mean TYD should be held for six or seven months, but the statistic underscores this ETF's utility in terms of providing a quick jolt of added upside for a bond portfolio.

	For more on leveraged ETFs, click <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/06/2694539/4-more-leveraged-etfs-your-broker-forgot-to-mention-boil-sdp-">here</a>.

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Direxion Daily 7-10 Year Treasury Bull 3X Shares

4 Leveraged ETFs Poised to Deliver Big Gains (TYD, SJI)

<div class="entry-content">

		The Industrials sector ranks fourth out of the ten sectors as detailed in my <a href="http://blog.newconstructs.com/2012/07/10/roadmap-to-the-best-worst-etf-mutual-fund-sectors/">sector roadmap</a>. It gets my Neutral rating, which is based on aggregation of ratings of 17 ETFs and 18 mutual funds in the Industrials sector as of July 11, 2012. Reports on the best &amp; worst ETFs and mutual funds in every sector and style are on <a href="http://www.newconstructs.com/nc/research/report/etf-and-fund-reports.htm">here</a>.

		Figures 1 and 2 show the five best and worst-rated ETFs and mutual funds in the sector. Not all Industrials sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 368), which creates drastically different investment implications and ratings. The best ETFs and mutual funds allocate more value to Attractive-or-better-rated stocks than the worst ETFs and mutual funds, which allocate too much value to Neutral-or-worse-rated stocks.

		To <a href="http://blog.newconstructs.com/2012/04/03/how-to-find-the-best-etfs/">identify the best</a> and <a href="http://blog.newconstructs.com/2012/04/05/how-to-avoid-the-worst-etfs/">avoid the worst</a> ETFs and mutual funds within the Industrials sector, investors need a <a href="http://blog.newconstructs.com/2011/11/23/predictive-fund-rating-methodology/">predictive rating</a> based on (1) <a href="http://blog.newconstructs.com/2011/11/22/portfolio-management-rating-methodology/">stocks ratings</a> of the holdings and (2) the <a href="http://blog.newconstructs.com/2011/10/28/total-annual-costs-methodology/">all-in expenses</a> of each ETF and mutual fund. Investors need not rely on backward-looking ratings. My fund rating methodology is detailed <a href="http://blog.newconstructs.com/2011/11/23/predictive-fund-rating-methodology/">here</a>.

		Investors should not buy any Industrials ETFs or mutual funds because none get an Attractive-or-better rating. If you must have exposure to this sector, you should buy a basket of Attractive-or-better-rated stocks and avoid paying undeserved fund fees. Active management has a long <a href="http://blog.newconstructs.com/wp-content/uploads/2012/02/Failure-of-Active-Management1.pdf">history</a> of not paying off.

		See ratings and reports on all ETFs and mutual funds in this sector on my free <a href="http://www.newconstructs.com/nc/fundscreener/fund-screener.htm?task=ACTION_CATEGORY_TYPE_SEARCH&amp;selectedTypes=0,1&amp;selectedCategoryIds=5d882170114e11e1bb8900188b533b34">mutual fund and ETF screener</a>.
<div>

			Figure 1: ETFs with the Best &amp; Worst Ratings &ndash; Top 5
</div>

		<a href="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials1.jpg"><img alt="" class="aligncenter size-full wp-image-4159" height="235" src="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials1.jpg" title="Industrials1" width="338" /></a>

		* Best ETFs exclude ETFs with TNA&rsquo;s less than 100 million for inadequate liquidity.
<div>

			Sources: New Constructs, LLC and company filings
</div>

		<a href="http://bit.ly/NLS3GU">Seven ETFs</a> are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity standards.
<div>

			Figure 2: Mutual Funds with the Best &amp; Worst Ratings &ndash; Top 5

			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials2.jpg"><img alt="" class="aligncenter size-full wp-image-4158" height="228" src="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials2.jpg" title="Industrials2" width="338" /></a>

			* Best mutual funds exclude funds with TNA&rsquo;s less than 100 million for inadequate liquidity.
</div>
<div>

			Sources: New Constructs, LLC and company filings
</div>

		<a href="http://bit.ly/LfQZ0B">Four mutual funds</a> are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity standards.

		Industrials Select Sector SPDR (XLI) is my top-rated Industrials ETF and Fidelity Select Portfolios: Industrial Equipment Portfolio (FSCGX) is my top-rated Industrials mutual fund. Both earn my Neutral rating.

		First Trust ISE Water Index Fund (FIW) is my worst-rated Industrials ETF and Rydex Series Funds: Transportation Fund (RYTSX) is my worst-rated Industrials mutual fund. Both earn a Dangerous-or-worse rating.

		Figure 3 shows that only 391 out of the 518 stocks (over 63% of the total net assets) held by Industrials ETFs and mutual funds get a Neutral-or-worse rating. There are, simply, not many good stocks in this sector, which is why none of the 17 ETFs and 18 mutual funds are worthy buying. It is refreshing to see that 90% of the value allocated to ETFs is allocated to the best rated ETFs but its equally alarming to see that 73% of the value allocated to mutual funds are allocated to Dangerous-rated mutual funds.

		The takeaways are: mutual fund managers allocate too much capital to low-quality stocks and Industrials ETFs hold poor quality stocks.
<div>

			Figure 3: Industrials Sector Landscape For ETFs, Mutual Funds &amp; Stocks
</div>
<div>

			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials3.jpg"><img alt="" class="aligncenter size-full wp-image-4157" height="141" src="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials3.jpg" title="Industrials3" width="410" /></a>

			Sources: New Constructs, LLC and company filings
</div>

		As detailed in &ldquo;<a href="http://blog.newconstructs.com/2012/05/09/low-cost-funds-dupe-investors/">Cheap Funds Dupe Investors</a>&rdquo;, the fund industry offers many cheap funds but very few funds with high-quality stocks, or with what I call good <a href="http://blog.newconstructs.com/2011/11/22/portfolio-management-rating-methodology/">portfolio management</a>.

		Investors need to tread carefully when considering Industrials ETFs and mutual funds, as none of the ETFs or mutual funds are worthy of buying. Investors seeking exposure to the Industrials sector are better off focusing on individual stocks. Review my <a href="http://bit.ly/NuWA1Q">free stock screener</a> for the best stock investments in the Industrials sector.

		Northrop Grumman Corp (NOC) is one of my favorite stocks held by Industrials ETFs and mutual funds and earns my Very Attractive rating. NOC is a cash-generating machine. Since 2009, NOC has generated at least $2.6 billion in <a href="http://www.newconstructs.com/nc/help/glossary.htm#fcfDef">free cash flow</a> (<a href="http://www.newconstructs.com/nc/help/glossary.htm#fcfDef">FCF</a>) each year. And yet the market has an extremely pessimistic view of NOC. Based on its current stock price (~$63.08) the market expects NOC after-tax cash flows (<a href="http://www.newconstructs.com/nc/help/glossary.htm#nopat">NOPAT</a>) to permanently decrease by 50%. These low expectations offer investors a great risk/reward tradeoff.

		GEO Group, Inc. (GEO) is one of my least favorite stocks held by Industrials ETFs and mutual funds and earns my Very Dangerous rating. Unlike NOC, GEO is a value destroyer. GEO has generated negative <a href="http://blog.newconstructs.com/2010/08/05/economic-versus-accounting-earnings/">economic earnings</a> every year since 2000 and negative free cash flow (FCF) nine of the past ten years. To justify its current stock price (~$23.11), GEO must increase profits 6.1% annually for 27 years. Lofty expectations and poor performance are the reasons I&rsquo;m bearish on GEO.

		429 stocks of the 3000+ I cover are classified as Industrials stocks, but due to style drift, Industrials ETFs and mutual funds hold 518 stocks.

		Figures 4 and 5 show the rating landscape of all Industrials ETFs and mutual funds.

		Our <a href="http://blog.newconstructs.com/2012/07/10/roadmap-to-the-best-worst-etf-mutual-fund-sectors/">sector roadmap</a> report ranks all sectors and highlights those that offer the best investments.
<div>

			Figure 4: Separating the Best ETFs From the Worst ETFs
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<div>

			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials4.jpg"><img alt="" class="aligncenter size-full wp-image-4156" height="245" src="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials4.jpg" title="Industrials4" width="409" /></a>

			Sources: New Constructs, LLC and company filings
</div>
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			Figure 5: Separating the Best Mutual Funds From the Worst Mutual Funds
</div>
<div>

			<a href="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials5.jpg"><img alt="" class="aligncenter size-full wp-image-4155" height="245" src="http://blog.newconstructs.com/wp-content/uploads/2012/07/Industrials5.jpg" title="Industrials5" width="409" /></a>

			Sources: New Constructs, LLC and company filings
</div>

		Review my <a href="http://www.newconstructs.com/nc/fundscreener/fund-screener.htm?task=ACTION_CATEGORY_TYPE_SEARCH&amp;selectedTypes=0,1&amp;selectedCategoryIds=5d882170114e11e1bb8900188b533b34">full list</a> of ratings and rankings along with free reports on all 17 ETFs and 18 mutual funds in the Industrials sector.

		Disclosure: I receive no compensation to write about any specific stock, sector or&nbsp;theme.
</div>

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Top 10 Industrial Sector ETFs

S&amp; Capital IQ has raised its recommended rating on the industrials sector to Overweight from Marketweight and in a research note, the firm highlighted three ETFs it's bullish on as ways for investors to gain exposure to industrial stocks.

In S&amp;P Capital IQ's coverage universe, the firm classifies 28 ETFs as tracking the industrials space, but the Industrial Select Sector SPDR (NYSE: <a class="ticker" href="/stock/xli#NYSE">XLI</a>), Vanguard Industrials ETF (NYSE: <a class="ticker" href="/stock/vis#NYSE">VIS</a>) and the iShares Dow Jones US Industrial ETF (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) along with three others are the ones that make the cut with Overweight ratings.

With an expense ratio of 0.2% and $2.74 billion in assets under management, the Industrial Select Sector SPDR was modestly higher in 2011. General Electric (NYSE: <a class="ticker" href="/stock/ge#NYSE">GE</a>), United Parcel Service (NYSE: <a class="ticker" href="/stock/ups#NYSE">UPS</a>), United Technologies (NYSE: <a class="ticker" href="/stock/utx#NYSE">UTX</a>), Caterpillar (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>) and 3M (NYSE: <a class="ticker" href="/stock/mmm#NYSE">MMM</a>) account for about 32% of that ETF's weight.

IYJ has $349.4 million in AUM and fees of 0.47%. The same five stocks represent the top five holdings in IYJ, accounting for about 25% of the ETF's weight. Overall, IYJ is home to 244 stocks.

With an expense ratio of 0.19%, the Vanguard Industrials ETF is the cheapest of the trio. That ETF is home to 372 stocks and the same five stocks also make up the Vanguard offering's top five holdings. VIS was down slightly last year as was IYJ.

S&amp;P Capital IQ recommends a 12% stake in industrials, relative to the S&amp;P 500's recent 11% weighting, the firm said in the research note. The firm believes heavy industrial machinery, equipment rental, truck and truck engine manufacturing, and package delivery are all likely to benefit from increased global demand in 2012 and noted the sector is poised for outperformance as investors discount a gradual economic recovery in the U.S., as well as continued solid growth in Asia, believing European woes will remain relatively contained, according to the note.

Upgrades

S&P Bullish On Select Industrials ETFs

<h4><a href="http://wallstreetsectorselector.com/wp-content/uploads/2011/10/factory.jpg"><img class="aligncenter size-full wp-image-127606" title="Factory Orders: Economic Report Card" src="http://wallstreetsectorselector.com/wp-content/uploads/2011/10/factory.jpg" alt="Factory Orders: Economic Report Card" width="116" height="137" /></a></h4>
<h4>Industrials Select Sector SPDR (AMEX: <a class="ticker" href="/stock/xli#AMEX">XLI</a>) and Industrials iShares (AMEX: <a class="ticker" href="/stock/iyj#AMEX">IYJ</a>) rose despite the negative “Durable Goods Orders” Report released earlier today by The US Department of Commerce.</h4>
Durable goods orders indicate demand for goods such as cars, airplanes and appliances; The US Department of Commerce said that overall demand for durable goods fell by .8% from September.  Decreased orders for durable goods would indicate less demand and thus a slowing economy.
Industrial ETFs did not respond to the negative durable goods report however, as (AMEX: <a class="ticker" href="/stock/xli#AMEX">XLI</a>) increased .71% while Industrials iShares (AMEX: <a class="ticker" href="/stock/iyj#AMEX">IYJ</a>) followed with an over 1% increase by the end of the trading day.
The surge in (AMEX: <a class="ticker" href="/stock/xli#AMEX">XLI</a>) and (AMEX: <a class="ticker" href="/stock/iyj#AMEX">IYJ</a>) is likely due to large quarterly profit increases for large industrial goods provided by companies such as Caterpillar (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>) and Detroit auto makers last month. 
 Although (AMEX: <a class="ticker" href="/stock/xli#AMEX">XLI</a>) and (AMEX: <a class="ticker" href="/stock/iyj#AMEX">IYJ</a>) surged today, they are likely to fall as the US Economy still teeters on the brink of recession and the surge in car sales and machinery orders last month evens out.  Also, the situation in Europe still remains tenuous and any hick-up in a bail-out plan across the Atlantic will have a direct effect on demand in the industrials marketplace, as a Euro hick-up would likely derail any signs of a US economic recovery.
<h4>All in all, one can expect industrial ETFs such as (AMEX: <a class="ticker" href="/stock/xli#AMEX">XLI</a>) and (AMEX: <a class="ticker" href="/stock/iyj#AMEX">IYJ</a>) to likely fall in coming days due to the painstakingly slow US economic recovery and any negative developments that come out of Europe.</h4>
<h4>ETF Summary:</h4>
(AMEX: <a class="ticker" href="/stock/xli#AMEX">XLI</a>) +0.23, +0.71%
(AMEX: <a class="ticker" href="/stock/iyj#AMEX">IYJ</a>) +0.63, +1.03%
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Industrial ETFs Rise Against Negative Durable Goods Order Report

Eurogroup president Jean-Claude Juncker questioned if the IMF would release its next disbursement of aid for Greece, according to <a href="http://online.wsj.com/article/BT-CO-20110526-710792.html">Dow Jones</a>.

While the euro had initially been up on the session, news of Juncker's statements may have driven the euro down against the dollar, as the currency pair entered negative territory for a moment before returning to a modest gain on the day.

Juncker stated that he could not speak for the rest of the IMF, but pointed out the fact that, due to the IMF's rules, Greece can only receive aid if it can demonstrate that it will have financing for the next 12 months.

If the IMF cannot lend Greece aid, then that role may fall to the rest of Europe. 

Or China, given its recent <a href="http://www.benzinga.com/trading-ideas/long-ideas/11/05/1114913/chinese-save-euro">willingness to support</a> Portugal.

Investors should weigh the situation carefully before moving forward. Given the outpouring of support, Christine Lagarde may be the next director of the IMF. As a former French government official, she may work to push the IMF in a direction that would maximize the outcome for Europe.

Traders who believe that the statements by Juncker foreshadow Greece's exit from the euro can approach it from two directions. Traders may wish to play it short, going bearish on the euro. In that case, ProShares UltraShort Euro (NYSE: <a class="ticker" href="/stock/euo#NYSE">EUO</a>) might be an investment worth looking into.

From a longer perspective, if Greece abandons the euro, that could irrevocably doom the currency. Germany may have to return to its own currency, which may appreciate significantly given the relative strength of its economy. 

However, that currency appreciation might weaken German exports. In that case, traders may look to play American exports which might become relatively cheaper compared to their German counterparts. iShares Dow Jones U.S. Industrials (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) might allow traders to get exposure to U.S. manufacturing.

Movers & Shakers

Currency ETFs

Forex

Juncker Assaults the Euro

<a href="http://www.businessweek.com/news/2011-05-18/yamaha-expands-atv-production-in-the-u-s-as-dollar-falls.html?">Bloomberg</a> reported Wednesday that ATV manufacturer Yamaha Motor Co. is expanding production of its vehicles in the United States. In the next two years, the Japanese company will move all of its production to the U.S. from Japan.

The move, which was initially announced in February, is unrelated to the recent natural disasters which have rocked the East Asian country.

On May 5th, <a href="http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-75973">The Boston Consulting Group</a> released a report in which they predicted that the U.S. would experience a manufacturing renaissance over the next five years due, in part, to the decline in the value of the dollar against other currencies.

In BCG's press release, they cited the decisions made by Caterpillar (NYSE: <a class="ticker" href="/stock/cat#NYSE">CAT</a>) and NCR Corp (NYSE: <a class="ticker" href="/stock/ncr#NYSE">NCR</a>) to expand their manufacturing operations in the United States.

As the value of the dollar declines relative to other currencies, the price of American made-products becomes more attractive—both to foreign consumers who can get the goods at bargain prices, and domestic producers who must shill out more money for imports.

Talk of a <a href="http://www.economist.com/node/17251850">currency war</a> has been ongoing for some time, as central banks around the world work to debase their currency and thereby increase manufacturing employment in their own nations.

If—as many <a href="http://www.benzinga.com/media/cnbc/11/05/1091541/what-forces-are-moving-the-dollar">economic commentators</a> believe—the Federal Reserve will succeed in its continued goal of debasement, then American manufacturing may boom in the coming years. That is great for a nation presently suffering from an unemployment rate hovering <a href="http://www.tradingeconomics.com/united-states/unemployment-rate">around 9%</a>.

Traders looking to play continued dollar weakness and American manufacturing strength might consider iShares Dow Jones US Industrials (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>) and PowerShares DB USD Bearish Index (NYSE: <a class="ticker" href="/stock/udn#NYSE">UDN</a>). IYJ may do well if the American manufacturing sector continues to grow, while UDN may be a consideration for traders looking to play dollar weakness.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Politics

PowerShares DB US Dollar Index Bearish Fund

How the Weak Dollar Could Create Jobs

Investors will have a slew of economic data to mull over this morning. The jobs report, which will be released at 8:30 a.m., will be at the forefront of the action. The data is sure to move the market which has been indecisive in this week's trade. 

Included in the jobs report will be Nonfarm Payrolls which increased by 192,000 in February. The consensus number this morning is an expected addition of 190,000 jobs.

Manufacturing Payrolls are expecting to show a gain of 30,000 jobs. Last month saw a jump of 33,000.

Nonfarm Private Payrolls will be reported as well. The private sector, which beat expectations last month by 24,000 jobs, is expected to have grown by a consensus figure of 200,000.

After posting no gain in last month's report, Hourly Earnings are foreseen to have risen by a consensus of 0.2%.

The Street is forecasting a slight rise in the Average Workweek from 34.2 to 34.3 hours worked.

The all-important unemployment rate will finish out the jobs report figures. Consensus estimates expect the overall number to mirror last month's report and remain at 8.9%. The unemployment rate fell below 9% for the first time since early 2009 last month. A number back above 9% could prove worrisome for traders and money managers.

If numbers turn out to be positive, look for the retail sector to put in nice gains. Optimism regarding the jobs market is sure to lead to a boost in consumer spending and should bode well for the SPDR S&amp;P Retail ETF (NYSE: <a class="ticker" href="/stock/xrt#NYSE">XRT</a>). If you are yearning for something a bit more adventurous, watch shares of Best Buy (NYSE: <a class="ticker" href="/stock/bby#NYSE">BBY</a>) which have been beaten down since disappointing earnings last Thursday. Best Buy could benefit from an optimistic employment forecast as discretionary spending would be expected to rise.

Not to be overlooked, ISM Index numbers are to be reported at 10a.m. Last month's report saw solid growth in the manufacturing sector as the ISM Manufacturing Index rose from 60.8 to 61.4. Consensus estimates are for the number to be 61.0 for March.

ISM Prices Paid looks to come in at 83.0. Last month's was slightly lower at 82.0.
Whichever way you think the numbers will play out, a straightforward way to trade the manufacturing reports are with broad based industrial and materials ETFs such as SPDR Dow Jones Industrial Average (NYSE: <a class="ticker" href="/stock/dia#NYSE">DIA</a>), iShares Dow Jones US Industrials (NYSE: <a class="ticker" href="/stock/iyj#NYSE">IYJ</a>), or Vanguard Materials ETF (NYSE: <a class="ticker" href="/stock/vaw#NYSE">VAW</a>).
Construction Spending will also be released at 10a.m and The Street is expecting the number to be -0.1%. The prior number came in at -0.7%.

Pre-Market Outlook

SPDR Dow Jones Industrial Average ETF Trust

Preview: Friday Morning's Economic Data (XRT, BBY, DIA, IYJ, VAW)

In my weekly Earnings Trends report, I rank the 16 economic sectors on a wide variety of earnings and sales metrics. The report just looks at the 500 firms in the S&amp;P 500, not the whole Zacks Universe. However, since it is organized by the individual metric, such as Annual Earnings Growth or P/E, it can be hard to get an overall picture of a given economic sector.
In these posts I will try to rectify that. Since there is a lot to write about in each sector, I will cover four sectors in each post. The data is based on the bottom up consensus estimates for each stock in the S&amp;P 500 and is then aggregated into the economic sectors. As a base I present the data for the S&amp;P 500 as a whole (same as in yesterday's post, so you can skip it if you read it already).
S&amp;P 500
To get an idea of how each sector will do, it is useful to have a common benchmark, such as the entire S&amp;P 500. For the S&amp;P 500 as a whole, earnings are expected to be up 19.83% year over year in the fourth quarter, down from 25.07% year-over-year growth in the third quarter.
Given that positive earnings surprises almost always outnumber earnings disappointments, the actual growth is likely to be somewhat higher than forecasted, perhaps even matching the third quarter level. What is true of the whole must be true for at least most of the component parts. In other words, if the sector estimates prove to be off, they are more likely to be too low than too high. For the full year, earnings are expected to have soared 42.85% for the S&amp;P 500 as a whole in 2010. Then again, 2009 was not exactly a normal year, so it was working off some very easy comps.
Growth is expected to slow to 15.13% in 2011, and then continue to fall to 11.97% in 2012 as the comparisons become more and more difficult. Still, even the 2012 growth is pretty healthy. Revenue growth has been much slower and the market as a whole has been enjoying margin expansion, as have most of the sectors. Revenues are expected to grow 4.03% in 2010 and then actually accelerate to 5.38% growth in 2011 and to 5.58% growth in 2012.
The revenue picture (and thus the net margin picture) is significantly distorted by the financial sector, but the distortion should fade a bit over time. Excluding the financials, revenues are expected to have grow by 8.18% in 2010, and then slow to 5.88% growth in 201 and 5.58% growth in 2012.
Net margins for the whole S&amp;P are expected to rise from 8.80 2010 to 9.61 2011. If one excludes the financials, the margins are lower but still growing, rising to 8.83% in 2011 from 8.25% in 2010. The S&amp;P 500 as a whole is selling for 15.5x 2010 earnings and 13.4x 2011 earnings expectations. The “per share” numbers work out to $82.18 for 2010 and $95.06 for 2011.
S&amp;P 500 ETF: (<a href="http://www.zacks.com/stock/quote/spx">SPX</a>)
Autos
Earnings growth in the Auto sector is expected to fall sharply to just 13.64% year over year in the fourth quarter from 90.75% in the third quarter. That is mostly -- but not entirely -- due to higher base earnings in the fourth quarter of last year than in the third quarter of 2009. However, sequentially earnings are expected to be down by 8.20% so it is not only about a higher base.
Keep in mind that for most of the third quarter of 2009, two of the “big three” were in chapter 11 bankruptcy. Those two firms are not part of the S&amp;P 500 -- although I would expect GM (<a href="http://www.zacks.com/stock/quote/gm">GM</a>) to be added at some point in the near future; Chrysler is still not publicly traded) -- but indirectly they did affect the other firms in the sector that are in the S&amp;P 500.
This is a pretty small sector, particularly by number of firms with just six firms in it and accounting for just 1.35% of total expected earnings in 2011 (virtually unchanged from 1.36% in 2010). That number should increase when GM is once again a part of the S&amp;P 500, but it will still be a small sector. Earnings growth was stellar in 2010, rising 2,101.27%, but you should pretty much consider that the same as N/A -- more or less a question of dividing by close to zero.
Growth is expected to slow to a much more normal 14.01% in 2011 and then slow further to 6.79% in 2012. While auto sales have been recovering, they are still far below the levels that were considered normal before the Great Recession. Then it was considered normal for the industry to be selling 16 or 17 million cars and trucks a year in the U.S. Sales fell to an annual rate of below 10 million in the worst of the Great Recession, and have since worked their way back to the 12.5 million level in December.
For 2009 and 2010 as a whole, auto sales have been running below the rate at which we scrap cars, so there is some very real pent-up demand. This is a relatively low margin sector, with net margins expected to rise to 5.57% in 2011 from 5.27% in 2010 (and just 0.24% in 2009). While the sample size of estimate changes is extremely low, almost all of the estimate revisions for both 2011 and 2012 have been upward over the last month.
On a valuation basis, the sector is very attractive with a P/E of 13.6x based on 2010 earnings and 12.0x based on 2011 earnings. I think this sector is very attractive and would overweight it significantly.
Basic Materials
Like Autos, this is a very cyclical industry and has been enjoying very solid growth as the recovery from the Great Recession has progressed. This industry is driven by global demand, not just U.S. demand, and the strong growth in places like China and India play a very big role here.
As with most of the sectors, year-over-year earnings growth is slowing significantly. In the fourth quarter, the sector is expected to report total earnings that are 19.97% higher than a year ago, but in the third quarter growth was 44.11%. As the comparisons get tougher, the rate of growth is slowing on an annual basis as well, with total net income expected to be up 64.62% in 2010, but falling to 30.30% in 2011 and to 18.01% in 2012. Still, that is well above the growth rate for the S&amp;P 500 as a whole for all three years.
Revenue growth is also above the overall S&amp;P 500 for all three years, but is also slowing -- falling from 11.75% expected for 2010 to 8.73% in 2011 and 5.77% in 2012. The direction of commodity prices will play a big role in both the revenue and the earnings growth of companies in this sector. With earnings growing much faster than revenues it means that net margins are rising, going from 4.47% in 2009 to 6.58% expected for 2010 to 7.89% for 2011. That is still below the overall S&amp;P 600 level.
Estimate momentum is better than average, with a revisions ratio of 3.40 (or almost 7 increases for every 2 cuts) for FY1 (mostly 2011) and 2.33 for FY2 (mostly 2012). That could well mean some good short-term trading opportunities in the sector.
Valuations are a bit on the high side, particularly looking at the 2010 P/E of 18.4x. With the better-than-average growth expected for 2011, the P/E based on 2011 earnings falls much close to the overall market average at 14.1x.
I like this sector from a long-term theme point of view (harder to find high quality mineral reserves at a time when the growth of China and India are creating massive demand for things like copper and iron ore). I would have at least a market weight in this sector, and would probably overweight it. It had a nice run over the last few months, so perhaps market weight it now with the intention of padding your position on a pullback. It is a relatively small sector, though, expected to account for just 3.22% of total profits in 2011, up from 2.85% in 2010.
iShares Basic Materials ETF: (<a href="http://www.zacks.com/stock/quote/iym">IYM</a>)
Industrials
This cyclical sector was one of the earnings growth leaders in the third quarter with total net income up 53.07% over the third quarter of 2009. While growth is expected to slow in the fourth quarter, it will still be among the leaders, with 44.51% year-over-year growth expected. For all of 2010, earnings are expected to be 41.32% higher than in 2009.
Looking at 2011, growth is expected to slow to “just” 32.81%. That should be enough to put the sector near the top of the leader board, though, behind only Construction (which is going to grow off an extremely low base). The higher base is likely to slow growth to 12.80% in 2012, but that is still better than the S&amp;P 500 as a whole.
The high growth means that the sector is picking up earnings share, rising from 1.96% of total earnings to 2.26% of total earnings. That still makes it one of the smaller sectors in the index. As far as the top line is concerned, growth is comfortably above the overall market for all three years (but then again fell more than the overall market in 2009). Total revenues are expected to be 12.61% higher in 2010 than the depressed 2009 levels.
The recovery is expected to continue with 11.57% growth in 2011 before falling to a still-solid 8.25% in 2012. Net margins are expected to expand from 7.11% in 2010 to 8.45% in 2011. The sector is close to the very top in terms of estimate revisions, with 3.4 increases per cut for FY1 and 5.5 increases per cut for FY2. Thus, this is an area where there should be some good short-term trades to be made.
Valuations are higher than average for the sector at 19.5x 2010 earnings, but the P/E falls to 14.7x based on 2011 earnings. To make this sector a good long-term investment at these multiples, higher-than-average growth would have to continue into 2013. That is quite possible but far from guaranteed. Still, given the growth profile and the strong revisions, I would be inclined to overweight the sector.
iShares Industrial ETF: (<a href="http://www.zacks.com/stock/quote/iyj">IYJ</a>) 
 
Construction
This is a very battered down sector -- one that is just barely making it back into profitability in 2010 after major sector-wide losses in 2008 and 2009. The year-over-year growth in the third quarter was simply massive at 1148.57%, but that really is a case of dividing by near zero.
Surprisingly after such huge growth in the third quarter, year-over-year growth is expected to slow to just 9.59% in the fourth quarter. That is not because last year's fourth quarter was great. Sequentially, earnings in the sector are expected to be down 27.28% from the third quarter. The full-year earnings growth for 2010 cannot be calculated, but looking forward to 2011, the sector is expected to lead the growth standings by a wide margin, with earnings nearly tripling at 192.10% growth. The strong growth is expected to continue into 2012, with total net income rising another 44.29%.
Revenue growth was non-existent in 2010, coming in at just 0.14%. Top-line growth is expected to accelerate to 6.14% in 2011 and to 10.05% in 2012. Still, that makes Construction a big margin expansion story as net margins are expected to climb from 1.13% in 2010 to 3.11% in 2011. That still puts them far below the S&amp;P 500 as a whole.
The estimate revisions picture does not look very good, as it is one of only three sectors with more estimate cuts than increases for FY1. For FY2, the revisions picture is a little bit better with a revisions ratio of 1.33, but that is still well below the overall market.
In short, this sector looks like a turnaround story that is not turning. Along with the high growth comes some very lofty P/Es, with the sector selling for 76.4x 2010 earnings but falling to 26.1x 2012, as there will be something in the denominator. In fairness, the sector probably looks a lot cheaper on a book-value basis than it does on an earnings basis at this point.
With housing prices heading down again, I would avoid this sector entirely. It is a very small sector expected to account for just 0.27% of total earnings in 2011, but that is up from 0.10% in 2010. Unless you are an index fund, avoiding this sector will not put you at major risk of underperforming the overall index.
There will be a time for those with a strong contrarian streak to own this sector, I just don't think the time is now. Wait until the sector starts to be among the leaders in terms of estimate revisions, then pounce on it. You might not get the low tick, but there should be plenty of room to ride it when this sector does finally get its act together.
Yesterday, I provided a similar analysis for the Consumer Staples, Discretionary, Retail and Medical sectors (see <a href="http://www.zacks.com/stock/news/45714/Sector+Watch%3A+Consumer%2C+Retail%2C+Medical">"Sector Watch: Consumer, Retail, Medical"</a>). Tomorrow look for an analysis of Conglomerates, Technology, Aerospace and Energy. I plan to finish up on Thursday with an analysis of the Financial, Utilities, Transportation and Business Services sectors.
You can find the underlying numbers in the Earnings Trends report (see <a href="http://www.zacks.com/commentary/16708/Earnings+Continuing+to+Grow">"Earnings Continue to Grow"</a>) to see how the sectors line up on each of the metrics discussed in this analysis as well as several others.   <a href="http://www.zacks.com/">Zacks Investment Research</a>

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iShares U.S. Industrials ETF (BATS:IYJ), Quote.Headers.trade-ideas