Wall Street Pump & Valve Industry Watch, February 2015

The Jordan, Knauff & Company (JKC) Valve Stock Index was down 13.5 percent over the last 12 months, while the broader S&P 500 Index was up 11.4 percent. The JKC Pump Stock Index decreased 12.9 percent for the same time period.¹

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) decreased 3.2 percent from November’s reading to 55.5 percent. Manufacturing activity is moderating, shown by the fact that this is the third drop in the index in the past four months. Slowing demand from the energy industry caused by falling oil prices, the slowdown at West Coast ports and a slowing global economy are all impacting the PMI. Reflecting lower energy prices, the Price Index declined 6 percent to 38.5 in December, the lowest reading for prices since June 2012. The Employment Index rose 1.9 percent to 56.8 percent.

Figure 1. Stock indices from Jan. 1, 2014, to Dec. 31, 2014. 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 Commerce Department reported that U.S. gross domestic product rose 5 percent on an annual basis in the third quarter of the 2014, making it the strongest quarter of economic growth since 2003. Growth was seen in business investment, consumer spending, housing, exports and government spending. With lower gas prices, consumers increased their spending by 3.2 percent. Federal government expenditures and investment increased 9.9 percent, while defense spending rose 16 percent during the quarter.

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

The Department of Labor reported that more than 2.95 million jobs were created last year, making it the best year for job growth since 1999. The unemployment rate declined to 5.6 percent in December, much lower than the 6.7 percent rate in December 2013. The manufacturing sector added an average of 16,000 jobs per month in 2014.

Brent and West Texas Intermediate crude oil price benchmarks fell to $62 per barrel and $59 per barrel, respectively, in December after reaching monthly highs of $112 per barrel and $105 per barrel in June of last year. U.S. domestic crude oil production was at its highest level in almost 30 years in 2014, up 16 percent over 2013 production. The average number of drilling rigs actively exploring for or developing oil or natural gas in the U.S. was 1,862 in 2014, up 5.7 percent over 2013 levels.

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

The U.S. Energy Information Administration estimates that the global production of liquid fuels exceeded consumption in each of the four quarters of 2014. Global production has not exceeded consumption for more than two consecutive quarters during the previous five years.

On Wall Street, the Dow Jones Industrial Average and the S&P 500 Index both gained 0.3 percent in December. The NASDAQ Composite rose 0.2 percent for the month. Based on positive economic data and the Federal Reserve Bank’s statement that interest rates would remain at current near-zero levels for a “considerable time,” the major indices had solid gains for the year. The Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite added 7.5 percent, 11.4 percent and 13.4 percent, respectively, in 2014.

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.