Many feared that the low energy prices would have a wide effect on U.S. industries and industrial sector-related exchange traded funds, but concerns may have been overblown.
Capital expenditure still remains robust, despite fears that low oil prices would drastically cut down on investments. For instance, outlays for rigs and wells increased 8.9% over the fourth quarter after a 8.3% rise from July through September, reports Vince Golle for Bloomberg.
While the jump in fourth quarter spending was lower than the first half, the pace of capital expenditures remained high, even as oil prices plunged 60% from their mid-2014 highs.
Looking at all equipment spending across Corporate America, purchases of “other equipment,” which includes drill pipes and bits, agriculture, construction and service industry machinery, dipped 0.1% over the fourth quarter, compared to a 4.1% fall in the Q3, according to the Commerce Department.
“Obviously the low oil prices are likely to depress investment among energy producers,” she said.
“This is at least partly offset by a better outlook for investment from those non-energy producing companies,” Aneta Markowska, Societe Generale’s chief economist, said in the Bloomberg article. In the end, “I wouldn’t completely throw in the towel on business investment on the back of this energy story – it’s very mixed.”
While the industrial sector has some exposure to the oil industry, other areas of the economy may still prop up the sector. Industrial companies may capitalize on increased consumer spending and reduced input costs as a result of cheaper oil prices.
For instance, XLI’s top sector allocations include aerospace & defense 27.0%, industrial conglomerates 18.5%, machinery 16.1%, road & rail 11.0%, air freight & logistics 7.2% and electrical equipment 5.7%. [New Government Budget Could Fuel Defense ETFs]
Industrial Select Sector SPDR
For more information on the industrials sector, visit our industrials category.
Max Chen contributed to this article.
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