Pump Market Analysis
by Jordan, Knauff & Company

The Jordan, Knauff & Company (JKC) Valve Stock Index was up 14.7 percent over the last twelve months, while the broader S&P 500 Index was up 13.9 percent. The JKC Pump Stock Index increased 25.4 percent for the same time period.1

stock chartFigure 1. Stock indices from April 1, 2016 to March 31, 2017. Source: Capital IQ and JKC research. Local currency converted to USD using historical spot rates. The JKC Pump and Valve Stock Indices include a select list of publicly traded companies involved in the pump and valve industries weighted by market capitalization.

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) decreased slightly to 57.2 percent in March, a level still consistent with solid activity in the manufacturing sector. All 18 industries reported growth in new orders for March as the New Order Index remains near a three-year high. The New Export Orders Index rose 4.0 points to 59.0 percent, the fastest pace of export growth since 2013. The Employment Index registered 58.9 percent, up 4.7 percentage points from the February reading. Manufacturing payrolls have increased an average of 19,000 jobs over the past three months.

The U.S. economy grew by 2.1 percent in the last quarter of 2016, compared to a 3.5 percent rate in the third quarter, according to the final gross domestic product (GDP) estimate provided by the U.S. Bureau of Economic Analysis. Personal consumption rose 3.5 percent, showing improvement in spending on transportation, recreation and insurance. For the full year, GDP expanded 1.6 percent in 2016.

rig counts chartFigure 2. U.S. energy consumption and rig counts. Source: U.S. Energy Information Administration and Baker Hughes Inc.

The U.S. Energy Information Administration reported that total U.S energy production fell last year for the first time since 2009. U.S. production totaled 84.1 quadrillion Btu’s in 2016, a decline of 4 percent over 2015. Petroleum production fell 5 percent, while natural gas fell 2 percent. Fossil fuel production declined 7 percent, with most of the decline coming from coal production, which decreased 18 percent. U.S. renewable energy production increased 7 percent in 2016 after declining slightly in 2015. Wind energy was responsible for almost 50 percent of the increase, while solar and hydroelectricity accounted for almost 25 percent each.

Higher oil prices are contributing to an increase in upstream earnings for U.S. oil producers, causing some companies to increase their investment budgets. Between the fourth quarter of 2015 and the fourth quarter of 2016, 44 U.S. onshore-focused oil production companies increased their capital expenditures by 72 percent, based on their publicly available financial statements. Company announcements and increases in the number of active oil rigs suggest these companies are continuing to increase capital expenditures in exploration and development, which would support production growth in the U.S. this year.

DESCRIPTIONFigure 3. U.S. PMI and manufacturing shipments. Source: Institute for Supply Management Manufacturing Report on Business and U.S. Census Bureau

On Wall Street the Dow Jones Industrial Average was down 0.7 percent, the S&P 500 Index decreased 0.8 percent and the NASDAQ Composite rose 1.5 percent for the month of March. The S&P 500 Index had its strongest first quarter since 2013 gaining 5.5 percent. The Dow Jones Industrial Average was up 4.5 percent and the NASDAQ Composite rose 9.8 percent for the quarter. The technology sector was up 12.2 percent, while energy was the weakest sector, down 7.7 percent for the quarter. An increase in U.S. oil production raised investor concerns over the oversupply in the global crude oil market.

Reference
1. The S&P Return figures are provided by Capital IQ.

These materials were prepared for informational purposes from sources that are believed to be reliable but which could change without notice. Jordan, Knauff & Company and Pumps & Systems shall not in any way be liable for claims relating to these materials and makes no warranties, express or implied, or representations as to their accuracy or completeness or for errors or omissions contained herein. This information is not intended to be construed as tax, legal or investment advice. These materials do not constitute an offer to buy or sell any financial security or participate in any investment offering or deployment of capital.