In June, US durable goods orders dropped by 9.3%. This decline was not as bad as the expected 10.8% decrease. May had seen a big jump of 16.5%, the highest since July 2014. The transportation sector saw the largest impact, falling by 22.4% or $32.6 billion. Without transportation, orders actually grew by 0.2%, slightly lower than the revised 0.6% from May. When excluding defense items, orders fell by 9.4%, down from a 15.7% rise in May, which was previously adjusted from 15.5%. Non-defense capital goods, excluding aircraft, decreased by 0.7%, compared to a 2.0% increase in May. Future factory orders will refine these preliminary numbers for June.

June Decline and Market Reaction

June’s decline marked the steepest drop since April 2020. One reason for this volatility could be President Trump’s focus on selling big-ticket items like defense equipment and aircraft to improve trade figures. Market reactions are showing slight gains: the Dow is expected to open 68 points higher, while the S&P index is anticipated to rise by 10.15 points and NASDAQ by 8.63 points. The market’s rise can be attributed to the fact that the -9.3% decline in durable goods orders was less severe than the predicted -10.8% drop, offering traders some relief. The key takeaway is that the market was prepared for even worse news. Beyond the headline number, the 0.2% increase in orders excluding transportation is particularly noteworthy. This indicates that businesses are still investing in equipment and machinery, which is a positive sign. It’s crucial to focus on this steady spending rather than the more volatile overall figures. This resilience matches other recent data. The Institute for Supply Management’s (ISM) latest manufacturing index showed improvement in the “new orders” component, moving from 45.6 to 46, suggesting that the worst of the slowdown may be in the past and that core business spending is stabilizing.

Factors Driving Swings and Trading Strategies

The major fluctuations are mainly due to transportation and defense, as Michalowski pointed out. The 22.4% drop in transportation orders significantly impacted the overall numbers. We should expect this trend to continue, leading to major market volatility each month with the durable goods report. Such a large drop is notable, harkening back to the April 2020 shutdowns. The surge the previous month was the largest since 2014, highlighting how extreme these changes have become. Politically motivated sales of aircraft and defense goods could lead to these unpredictable monthly swings being the norm. For trading strategies, this suggests using options to navigate the expected fluctuations. It would be wise to consider buying volatility or employing spreads on industrial sector ETFs. This approach can help manage or profit from sharp market moves. The contrast between the erratic overall figures and the steadier core data presents opportunities for traders who can look deeper. Create your live VT Markets account and start trading now.

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