Durable Goods Down, Stocks Up: Here's Why
When the Census Bureau announced that August Durable goods orders fell 1.3 percent, the biggest drop since August 2009, you might think to yourself, "uh-oh!" Fear not, for US stocks are taking off at the opening and here's why: it's all about expectations.
Durable goods orders reflect the new orders placed with manufacturers for immediate and future delivery of long-lasting goods. Investors care about this data because it can tell us what to expect from the manufacturing sector, as factories crank up production to fill the orders. Taking it one step further, if companies commit to spending more on equipment and other capital, that means that they're selling stuff and growing.
But the top-line number from the durable goods report includes transportation and due to the large impact of that sector, its inclusion can throw off the numbers. So the Census Bureau also reports on durable goods, excluding transportation. That number showed an increase of 2 percent, twice as much as economists' had forecast. For this morning, the investor take-away is that double-dip is off the table.
Some aren't so sure--when examining the data on the previous two recoveries, the current recovery is weaker than the prior two expansionary periods (early 1990's and early 2000's). While there is plenty of data and anecdotal evidence that this is not a garden-style recovery, the bias for the stock market continues to be higher because expectations have remained so low for so long. The best advice is to keep your wits about you and don't forget to re-balance at the end of the month/quarter.
Image by Flickr User Abdallahh, CC 2.0
