Durable Goods: Tech Turns the Corner

The Durable Goods report for July was released yesterday. Should tech sector investors be happy?

Okay, the answer was revealed in the title of this post. Yes, it's looking like tech has truly established a bottom and has begun to carve out a new trend to the upside.

Shipments

First, we'll take a look in the rear-view mirror and review the Shipments data. The following chart shows the summary data for the tech hardware sector as a whole. Month-over-month, shipments increased 7.4% and it sure looks like the downtrend has finally been broken.


This next chart focuses just on those hardware manufacturers involved in computers and related products. The gain here, 2.7%, is less dramatic but again it looks like a durable bottom has been put in and improvement is underway.


This third chart is focused on Semiconductors. Here we have the star of the tech sector. Semis just put in a 43% increase in shipments month-over-month.


New Orders

Looking to the future, let's review the New Orders data.

In the following chart, we again look at the tech sector as a whole. New Orders are up a modest 1.6%. For the last few months now, New Orders have been increasing in a slow but sure manner and the resulting up-trend seems ever more secure.


This last chart focuses on computers and this is the only disappointing news we have. New Orders fell 2.8%, confirming that this category in the tech sector is still a little shaky. Nevertheless, the overall look of this chart suggests a bottom has been established here, as well.


Conclusion

The common factor in all these charts today is that tech sure seems to have established a solid bottom and that a trend reversal is underway with the new trend being clearly to the up-side. Though we didn't show the charts, the Communications Equipment category also participated in the growth seen in July with Shipments increasing 6.8% and New Orders increasing 9.4%. So pretty much across the board, tech turned in some decent numbers.

Another positive factor in today's report is that Semiconductors had a great month in July. All those chips have to go somewhere and I suspect that we will see nice growth reflected in the other tech sector categories as manufacturers build the products that use those semiconductors.

Now if end user demand from businesses and consumers can ramp up sufficiently to absorb what is being manufactured, then we can expect to see these charts continue to head in the right direction.

How to play it

Given that these charts don't single out any particular company, the way to play the tech recovery could be through ETFs. There is a good selection of ETFs that give investors exposure to the whole sector and others that carve the tech sector into separate categories such as networking, semiconductors, etc. Pick your vehicle and settle in for the ride.

Disclosure: Long ROM, USD and IGN

Comments

[Larry House:]

At the risk of being called names, I must point out that it is very premature to call a complete turn and new uptrend in anything. What will your explanation be in a few months if the data is different? We are in a LONG transition period. We are going to have blips in both directions. This morning's employment data didn't show a new trend higher. There are going to be green shoots in various places that are interesting to talk about, but it is at one's own peril to call them a new trend.

Aug 27 11:23 AM

[Wayne A. Co...:]

I think future data will tell a different story. If tech was truly rebounding here, it would be leading this market, not financials.

Tech gave up leadership of the market in late June and has been dragged higher by the broader market. Not an encouraging sign.

Aug 27 11:39 AM

[PseudonymName:]

Buy the bad news and sell the good news?

Aug 27 12:43 PM

[Wisdom vs. ...:]

most of the tech stocks in my portfolio have not bottomed, and csco certainly (well, most likely) has not bottomed.

Aug 27 03:52 PM

[cayman:]

I was looking for some good news adn read your post as a respite from all the negative out there but this theme is overwhelming in all th research out there and you nailed it adn at the same time refuted your entire article

"Now if end user demand from businesses and consumers can ramp up sufficiently to absorb what is being manufactured, then we can expect to see these charts continue to head in the right direction."

Can it just be that we've seen inventory restocking reflected in your data and we're crossing our fingers hoping someone will buy. reflected in your statement.

Aug 28 03:48 AM