Tags: durable | goods | new | orders

Durable Goods Orders Still Bullish for Stock Market

By    |   Friday, 28 Feb 2014 06:46 AM

New orders for durable goods are one of the few economic indicators that provide insight into the stock market. This week's report showed stock prices could continue rising because the indicator is bullish.

Durable goods are items expected to last at least three years. Household appliances like refrigerators are an example of durable goods. When demand for these items is strong, consumer confidence tends to be high, since consumers are making discretionary purchases instead of simply replacing items when necessary.

In addition to offering insights into consumer confidence, new orders also provide data on factory utilization and business profits. Both utilizations and profits should increase when orders are rising.

Data for durable goods go back to 1992. Since then, investing in the S&P 500 only when new orders were greater than they were six months previous would have provided an average annualized gain of 9.6 percent, beating the return of a buy-and-hold investment, which was only 7 percent without dividends.

More importantly, you would have avoided every decline of 15 percent or more. Bear markets have occurred only when new orders have been falling. This indicator would have avoided the declines in 2000 and 2008 and a number of additional smaller declines.

Since 1992, there have only been two times when the S&P 500 fell 10 percent or more while durable goods orders were on the rise, and both market declines were brief. The first time was September and October 1998, when the market fell 12.1 percent. The second time was August 2002 when there was a 10.9 percent decline. In both cases, prices completely recovered their losses in less than four months.

A bear market is possible when durable goods orders are rising, but it is unlikely. This indicator shows the economy is still growing and stock prices have additional upside potential.

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MichaelCarr
New orders for durable goods are one of the few economic indicators that provide insight into the stock market. This week's report showed stock prices could continue rising because the indicator is bullish.
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2014-46-28
Friday, 28 Feb 2014 06:46 AM
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