The U.S. manufacturing sector continues to show signs of recovery, supported by strong demand for goods. While inflation remains a key challenge, resilient demand and improving supply conditions are helping sustain momentum across the industry.
The Commerce Department said last week that orders for U.S.-made capital goods, which are designed to last for more than three years, rose more than economists had anticipated in July.
Given the situation, investors may want to consider funds like Fidelity Select Defense & Aerospace Portfolio FSDAX and Fidelity Select Automotive Portfolio FSAVX that are likely to benefit in the near term.
Durable Goods Orders Gain Momentum
The Commerce Department reported that new orders for U.S.-manufactured durable goods reached $339.3 billion in July, marking a 1.1% increase from June. Gains in June were revised upward to 0.5% from the previously reported figure. July’s increase also exceeded economists’ expectations for a 0.5% rise.
The latest jump represents the strongest monthly increase since April. Transportation equipment accounted for much of the growth, with orders in the category rising 2.3%. Within the segment, orders for nondefense aircraft and parts climbed 12.7%, while defense aircraft and parts orders increased 4.9%.
Excluding transportation equipment, durable goods orders still posted a 0.4% increase. Meanwhile, orders for nondefense capital goods excluding aircraft rose 0.2%.
The better-than-expected durable goods data comes as the manufacturing industry continues its gradual recovery.
The ISM Manufacturing PMI rose to 55.6 in July from 53.3 in June, beating analysts’ expectations of 54. The reading was the highest since May 2022, when the index stood at 55.9.
July also marked the seventh consecutive month of expansion for the manufacturing sector after a 10-month period of contraction. Any reading above 50 signals expansion.
However, the industry continues to face cost pressures. President Donald Trump’s tariffs have affected several parts of the economy, while manufacturers are also dealing with higher prices for aluminum, steel and energy products amid the ongoing conflict in the Middle East.
Although oil prices have declined over the past two months, they remain well above the pre-war levels. Despite these challenges, strong demand continues to support durable goods orders, providing a positive backdrop for the broader manufacturing industry.
2 Best Choices
We have, thus, selected two mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #2 (Buy), and poised to gain from such factors. Moreover, these funds have encouraging three- and five-year returns. Additionally, the minimum initial investment is within $5000.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Defense & Aerospace Portfolio fund invests a huge portion of its assets in the securities of companies involved primarily in the research, manufacturing and sale of products and services in the defense or aerospace industries. FSDAX seeks capital growth by investing in both U.S. and non-U.S. companies.
Fidelity Select Defense & Aerospace Portfolio fund has a history of positive total returns for over 10 years. FSDAX has returned 28.7% and 18.5% over the past three and five years, respectively. The fund has an annual expense ratio of 0.63%, which is lower than the category average.
To see how this fund performed compared to its category, and other #1 (Strong Buy) and 2 Ranked Mutual Funds, please click here.
Fidelity Select Automotive Portfolio fund aims for capital appreciation. FSAVX invests most of its assets in common stocks of companies engaged in manufacturing automobiles, trucks, specialty vehicles, parts, tires and related services.
Fidelity Select Automotive Portfolio fund has a history of positive total returns for over 10 years. FSAVX has returned 4.6% and 1.4% over the past three and five years, respectively. Fidelity Select Automotive Portfolio fund has an expense ratio of 0.78%, which is lower than the category average of 0.92%.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
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