Tags: durable | goods | orders | stock

Surge in Durable Goods Orders Points to Gains in Stocks By Year-End

By    |   Friday, 29 Aug 2014 07:55 AM

Census Bureau data showed U.S. factories recorded the largest ever one-month gain in new orders for durable goods in July. New orders rose 22.6 percent from June, the biggest jump since the data were first reported in 1992.

Monthly changes in new orders for durable goods are among the most reliable stock market indicators, and the recent report is bullish.

Durable goods are products expected to last at least three years and include home appliances, cars, industrial machines and aircraft. Last month's gain was driven by aircraft, and when those orders were excluded, new orders actually declined 0.8 percent.

However, as a stock market indicator, it is best to include aircraft orders in the analysis. These orders, like every other new order, generate activity at factories and help maintain or create jobs.

New orders reflect increases in consumer and business confidence. Consumers make large purchases when they are confident they will have enough income to make monthly payments. Businesses buy durable goods when they are confident future sales trends will require new equipment.

Because new orders come before production and economic growth, new orders can be used as a tool to forecast the trend of the stock market. Buying stocks only when new orders are higher than they were a year ago consistently provides investors with returns that are twice as large as a simple buy-and-hold strategy. It is especially useful as a sell signal, helping avoid nearly every 20 percent decline in stocks since 1992 when the durable goods data were first released.

For now, the durable goods orders indicator is bullish and forecasts a continued bull market in stocks.

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MichaelCarr
Census Bureau data showed U.S. factories recorded the largest ever one-month gain in new orders for durable goods in July. New orders rose 22.6 percent from June, the biggest jump since the data were first reported in 1992.
durable, goods, orders, stock
271
2014-55-29
Friday, 29 Aug 2014 07:55 AM
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