Mikkel Rosenvold
6 days ago

Manufacturing Boom Ahead? Key Investment Strategies to Consider

Despite recent setbacks, signs indicate a potential surge in manufacturing. Discover actionable investment strategies that can capitalize on this boom.
JMiks / Shutterstock.com
JMiks / Shutterstock.com

The recent ISM manufacturing figure for May showed weakness, causing a short-term setback for the reflation narrative. However, there are numerous signs from both the market and forward-looking indicators suggesting we could be in for a substantial boom in manufacturing. As Oskar Vårdal from Steno Research notes, "We could be in for a VERY hot summer/autumn in manufacturing terms." This article will explore the actionable investment strategies presented in the original article.

Cyclicals vs. Defensives: A Strategic Shift

Market pricing in cyclicals versus defensives still shows support for materially higher ISM manufacturing levels around 56-57. Vårdal points out, "It might seem surprising to discuss the ISM reaching 56, but there are intriguing signs from high-beta economies like Sweden, Germany, Canada, and South Korea." The IFO index suggests a brighter future for the most cyclical components of the German economy, while Sweden’s orders-to-inventory ratio for manufacturers has surged recently, driven partly by rate cuts.

Investors should consider shifting their portfolios towards cyclical sectors. Materials, Consumer Discretionary, Industrials, and Consumer Services are currently traded at a discount in the scenario of rising ISM manufacturing levels. Vårdal highlights, "Materials have already had a great run on the first manufacturing rebound story, but there could very well be more return to pick up if manufacturing activity arrives in style in summer/Q3."

Energy and Utilities: Evaluating Fair Price

While cyclicals are recommended, defensives like Energy and Utilities are above their fair ISM price. However, Vårdal suggests, "Throwing a bit of inflation over the summer into the mix, the Energy bet might not be that expensive." Investors should weigh the potential benefits of holding energy stocks if inflation increases.

Global Equity Markets: Look Beyond the US

Korea and China remain the cheapest equity indices relative to the US business cycle. Vårdal observes, "The issue for Asian equities has been the latent risk of a debasement of the local currency when/if the USD rates remain high(er) for longer." For more on Chinese industrial production, read the analysis on Chinese inflation export here. Nonetheless, German and Swedish equities also remain attractively priced, aligning with early signs of growth in their manufacturing sectors.

Forex Strategies: Betting on the Undervalued

In the Forex market, SEK and AUD are relatively cheap compared to the US business cycle, while EURUSD and GBPUSD could gain materially if ISM manufacturing booms. Vårdal notes, "The Swedish survey data hints of a significant ongoing boom in Sweden," which supports the strength of the SEK. Conversely, NOK is severely underpriced and could perform well if oil prices rise and US manufacturing rebounds further. See the lastest FX Daily update right here:

Commodities: Focus on the Fundamentals

If ISM manufacturing truly rockets, commodities, rather than commodity stocks, are the place to be. Vårdal emphasizes, "Both Crude and Natural Gas have become fairly cheap relative to the potential boom in the manufacturing sector, joined by Palladium." Palladium, primarily used for catalytic converters in cars, indicates that car production has not been as strong as broader economic data might suggest.

However, Vårdal advises caution with Silver and Gold, noting, "Silver is still overvalued, even if ISM manufacturing rises to 56." Energy commodities are generally seen as cheaper and more promising than metals in the context of a manufacturing boom.


The information provided by this Site is for general informational purposes only. All information on the Site is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information on the Site.

More News

4 hours ago Federal Reserve Sees Progress on Inflation, Adjusts Rate Cut Expectations The Federal Reserve has adjusted its forecast for rate cuts this year, citing persistent inflation despite recent progress. High borrowing costs are expected to linger, impacting consumers and the broader economy.
5 hours ago Bitcoin Holds Steady as Fed Maintains Interest Rates: A Sign of Economic Caution In a cautious move, the U.S. Federal Reserve opted to keep interest rates unchanged, causing Bitcoin to hold its ground. Read more about the economic implications and market responses here: "The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year."
8 hours ago High-Stakes Showdown: Tesla Shareholders Decide on Elon Musk’s $56B Pay Package Tesla shareholders are set to cast their votes on Elon Musk's controversial $56 billion compensation package, a decision that could have far-reaching consequences for the company.
11 hours ago USDMXN: A Golden Opportunity USDMXN: A Golden Opportunity Amid Mexican Election Sell-Off, Says Steno Research Analyst
1 day ago EU's New Tariffs on Chinese EVs Hit Tesla and BYD Stocks! Tesla (TSLA) and BYD (1211) Stocks Plummet After EU Tariff Announcement
1 day ago Macro Mondays: Escaping the TRAP of Sideways Markets Andreas Steno, Mikkel Rosenvold And Mads Eberhardt talk macro and crypto
1 day ago EU launches trade war with China In a bold move that has sent ripples through global markets, the European Union has effectively launched a trade war against China. This decision, announced just three days after the European Parliament elections, raises significant questions about the influence and timing of the EU’s legislative body.
1 day ago July Bloodbath: Metals Set for Major Crash? Brace yourselves for a tumultuous July in the metals market! Industry experts are sounding the alarm as cluster risks in metals like gold, silver, and copper threaten a significant downturn. Here's why July could spell disaster for metal investors.
1 day ago 5 Stories To Invest in for Emerging Markets 5 Stories that might interest you if you're into investing in Emerging Markets