Tags: durable | goods | orders | stock

Durable Goods Drop But Remain a Stock Market Buy Signal

By    |   Friday, 31 Oct 2014 08:24 AM

New orders for durable goods fell 1.3 percent in September, the second straight month this economic indicator declined. In August new orders fell by 18.3 percent, the steepest drop ever for the data, which goes back to 1992.

Durable goods are products expected to last at least three years and include home appliances, cars, industrial machines and aircraft. 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.

New orders for durable goods are one of the most reliable stock market indicators. Despite the two-month decline, the recent report is still bullish for stocks.

Orders need to be placed before production can begin and the level of new orders will be an important factor in the economy's future growth. This relationship means that 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.

For now, the durable goods orders indicator is bullish, since new orders in September of this year were higher than they were in September of last year, and forecasts a continued bull market in stocks.

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MichaelCarr
New orders for durable goods fell 1.3 percent in September, the second straight month this economic indicator declined. In August new orders fell by 18.3 percent, the steepest drop ever for the data, which goes back to 1992.
durable, goods, orders, stock
253
2014-24-31
Friday, 31 Oct 2014 08:24 AM
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