The Institute for Supply Chain Management recently reported that manufacturing crossed into expansion mode and the Federal Reserve Bank of Philadelphia stated that its general economic index measuring manufacturing rose more than 230% from the previous month to a reading of 14.1.
This is great news beacuse it indicates that businesses are opening their wallets and starting to spend. One major reason behind this is that businesses implemented lean measures at the beginning of the year which included trimming inventories and supplies and as these inventories started to deplete, they needed to be replenished. To further add to this, many prominent economists expect the nation’s GDP to grow in the remainder of the year (there will be still be a net contraction for the total year). Should this trend continue, it could benefit base metals or the PowerShares DB Base Metals (DBB) ETF.
The second place to look is energy. As emerging markets continue to grow, they will demand more energy and the key will be exploring for and producing this energy. The iShares Dow Jones U.S. Oil & Gas Exploration & Production (IEO) ETF is an attractive place to look because it will benefit from a recovering economy and the stocks it holds are entirely focused on the exploration and production of oil and natural gas. This gives the fund more leverage to oil and gas prices, though with less revenue diversification than oil and gas themed funds with sizeable holdings in large integrated oil companies.
A third area to look at is precious metals, particularly silver. Silver offers many of the same characteristics as gold, in that it offers protection from inflation and a falling US Dollar. However, what makes the metal attractive is its role and importance in industrials. Silver is often used in electronics and batteries and therefore, is directly influenced by base metals. Additionally, most silver is mined as a by-product of other metals such as lead, zinc and copper. Thus, the supply and demand influences on these metals indirectly influence silver. As production cutbacks in the output of base metals continues, the global economy continues to show signs of recovery, and investor appetite for risk grows, supply pressures will be placed on the shiny metal. The iShares Silver Trust (SLV) is a good way to access the silver market.