Investor's Business Daily, July 3rd, 2007
The latest figures suggest the manufacturing sector and the economy are rebounding.
Demand for nondurables, such as food and chemicals, rose 1.6% in May vs. a flat reading in April, reported the U.S. Census Bureau Tuesday.
Export orders posted the 55th consecutive month of growth, the Institute for Supply Management said Monday. In June, seven industries had growth in new export orders: furniture, machinery, miscellaneous manufacturing, fabricated metals, chemicals, food and beverage, tobacco and transportation equipment.
Raw Materials
Prices for most raw materials, such as aluminum, chemicals, copper, gas and steel, rose but at a slower rate than in May.
The ISM manufacturing index rose to 56 in June vs. 55 in May, and higher than a forecast of 55.4. Manufacturing in June grew at its fastest rate since April 2006, when the index hit 56.9.
"This performance appears sustainable in the third quarter due to the current strength in new orders and production," Norbert Ore, chair of the ISM's survey committee, noted in the report.
A reading above 50 means growth while a reading below 50 points to contraction. June marked the fifth straight month of growth for the manufacturing sector and the 68th straight month of expansion for the economy, the industry group said.
The figures boosted basic materials firms and their ETFs that track them. ProShares Ultra Basic Materials UYM gained 28% since its February launch. The ETF doubles returns of the U.S. Dow Jones basic materials index, which contains 76 small- to large-cap companies engaged in producing chemicals, coal, lumber, paper and steel.
iShares Dow Jones U.S. Basic Materials IYM rose 21% for the year and 34% in the past 12 months.
IShares S&P Global Materials MXI rose 27% for the year and 48% since its inception in September. S&P Metals & Mining SPDR XME holds 26 names that are all roughly weighted 4% each. AK Steel AKS, Chaparral CHAP and Cleveland Cliffs CLF lead the fund. It has shot up 30% year to date and 25% in the past year.
Materials Select Sector SPDR XLB is heavily weighted with DuPont DD, Dow Chemical DOW, Monsanto MON, and Alcoa AA. The top four of 30 names make up 39% of assets. It has advanced 18% year to date and 33.5% over a year.
Enhanced Materials
PowerShares Dynamic Basic Materials PYZ added 23% this year and 34% since October inception. Three of its holdings have more than doubled this year: AK Steel AKS, CF Industries CF, and Terra Industries TRA.
Market Vectors Steel SLX flew 47% year to date and 59% since starting in October. The top three names, Rio Tinto RTP, Companhia Vale do Rio Doce RIO and Mittal Steel MT, make up 44% of assets.
