August Data Heighten Pressure on Industrial Stocks--update
August 22 2019 - 1:39PM
Dow Jones News
By Akane Otani
One of the hardest-hit areas of the stock market in recent
months is under fresh pressure after a series of reports showed the
manufacturing sector in decline.
Industrial stocks, ranging from heavy-machinery manufacturers
like Caterpillar Inc. to engine maker Cummins Inc., have lagged
behind the S&P 500 as investors have grown increasingly worried
about the sector's health.
Economic data released Thursday added to the group's woes. One
key gauge of manufacturing activity, IHS Markit's flash
manufacturing purchasing managers index, clocked in at 49.9 for
August. That was the lowest reading since 2009 and an indication
that manufacturing activity, which is defined as expanding when
readings are above 50, contracted for the first time in years.
Data from the Federal Reserve Bank of Kansas City also
disappointed, with the bank's manufacturing production index
declining further to -2 from -6 in July.
Those reports gave investors additional reasons to shy away from
the industrial sector.
The group has fallen 3.9% in August through Wednesday, more than
the broader S&P 500's 1.9% decline. Caterpillar has lost 11%,
while farm machinery maker Deere & Co. has fallen 6.5%, and
power and hand tool maker Stanley Black & Decker Inc. has
dropped 6.2%.
Shares of transportation companies that help move raw goods and
materials around the country have also taken a hit. The Dow Jones
Transportation Average, which tracks truckers, railroads and
airlines, is down 5.6% for the month through Wednesday, on track
for its biggest monthly decline since May.
The slide in industrial stocks matters to investors because many
have been trying to gauge whether increasingly disappointing
manufacturing data are foreshadowing a broader pattern of economic
decline or just showing isolated weakness for now.
Activity in the services sector has remained strong for the most
part. That is a reassuring sign for investors, who note that
manufacturing activity, while important, accounts for a relatively
small portion of overall economic growth.
The bad news: Downturns in the manufacturing sector have
typically preceded weakening in the services sector over the past
25 years, according to Simon MacAdam, global economist at Capital
Economics.
The caveat? "The extent of the slowdown has varied a lot and has
depended on broader economic conditions than simply the health of
the manufacturing sector," Mr. MacAdam said in a research note.
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Write to Akane Otani at akane.otani@wsj.com
(END) Dow Jones Newswires
August 22, 2019 13:24 ET (17:24 GMT)
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