Wall Street Pump & Valve Industry Watch, July 2020

The Jordan, Knauff & Company (JKC) Valve Stock Index was down 16.3 percent over the last 12 months, while the broader S&P 500 Index was up 10.9 percent. The JKC Pump Stock Index fell 10 percent for the same time period.¹

IMAGE 1: Stock indices from June 1, 2019, to May 31, 2020. 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 & valve industries, weighted by market capitalization. Source: Capital IQ and JKC research.

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

The Institute for Supply Management’s Purchasing Managers’ Index (PMI) registered 43.1 percent in May, up 1.6 percentage points from April. The New Orders Index registered 31.8 percent, an increase of 4.7 percentage points; the Production Index was 33.2 percent, up 5.7 percentage points; the Employment Index registered 32.1 percent, an increase of 4.6 percentage points; and the New Export Orders Index registered 39.5 percent, an increase of 4.2 percentage points compared to April.

The delivery performance of suppliers to manufacturing organizations was slower in May, as the Supplier Deliveries Index registered 68 percent, 8 percentage points lower than reported in April. Suppliers continue to be impacted by plant shutdowns, transportation challenges and the continuing difficulty in importing parts and components. This measure is still quite high at 68, but is the first decline in this component since October 2019.

In its second estimate of U.S. gross domestic product (GDP), the Bureau of Economic Analysis reported real GDP decline at an annualized rate of 5 percent in the first quarter of 2020, slightly worse than the original estimate of a 4.8 percent decline. The new data includes pre-tax corporate profits which declined $295 billion, or 13.9 percent, the largest drop since the fourth quarter of 2008. On a year-ago basis, profits were down 8.5 percent. Weak U.S. production and personal consumption weighed on corporate profitability.

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

The number of active oil and natural gas drilling rigs fell 56 percent between March 17 and May 12 reaching 339 rigs, the lowest level in Baker Hughes Company’s rig count data series dating back to 1987. Changes in the number of oil rigs have historically followed changes in oil prices with a lag time of about four months.

However, the current quick reduction in active rigs reflects the sudden loss of petroleum demand due to the coronavirus-related economic shutdown. Rig counts have also fallen in natural gas-focused areas, although those areas had fewer rigs. Drilling rigs in the Marcellus and Haynesville regions, which are exclusively natural gas rigs, declined by 23 percent and 26 percent respectively, from mid-March to May 12.

The Dow Jones Industrial Average rose 4.3 percent, the S&P 500 Index gained 4.5 percent, while the NASDAQ Composite rose 6.8 percent for the month of May. The markets were optimistic over the easing of lockdowns nationwide and the historic stimulus efforts by the Federal Reserve Bank and other international central banks. However, U.S. consumer spending showed a record drop for the second straight month.

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.