Core Capital Goods: A Beacon of Resilience in the Storm of Transportation Volatility

Amidst the cacophony of economic uncertainty—trade wars, tariff tremors, and cyclical swings—the durable goods orders report offers a rare clarity. While the headline numbers often fixate on transportation-driven volatility, the true signal lies buried in non-transportation core capital goods (excluding defense & aircraft). These orders, a contrarian barometer of business investment, reveal an unsettling divergence: while transportation sectors lurch from one-off booms to busts, core demand is proving stubbornly sticky. For investors, this is a call to rotate capital toward sectors with "order stickiness" while avoiding cyclical traps.

The Divergence: Transportation Volatility vs. Core Resilience

The April 2025 data underscores a stark divide. Transportation equipment orders surged 3.7%, fueled by a Boeing-led anomaly—non-defense aircraft orders jumped 139% as the company backfilled orders from prior delays. Yet this surge is a mirage. Boeing's backlog, not new demand, drove the spike. Meanwhile, core capital goods excluding defense and aircraft—the truest gauge of business confidence—rose 1.4%, defying expectations of a 0.2% decline. This is no fluke: over the past three months, core orders have grown at a 3.0% annualized rate, even as transportation gyrates.

The Contrarian Case: Why Core Orders Signal Future Recovery

1. Machinery and Metals Defying the Odds
While electronics and computers faltered (-1.4% orders), machinery orders rose 1%, and fabricated metals held steady. These sectors are the "stickiest" of all—resistant to short-term shocks due to replacement cycles and pre-tariff stockpiling. The primary metals sector, for instance, saw orders climb 0.7% as firms front-loaded purchases ahead of steel/aluminum tariffs. This preemptive buying isn't just noise; it's a hedge against future cost pressures, signaling long-term investment conviction.

2. Tariffs Aren't Derailing Investment—Yet
Analysts feared that tariffs would cripple capital spending, but the data tells a different story. While motor vehicle sales spiked to 17.7 million units (SAAR) in March—driven by pre-tariff demand—the motor vehicle industry itself is cautious. Orders for transportation equipment excluding aircraft fell 0.6%, suggesting the sector's boom is unsustainable. Meanwhile, core orders' year-over-year growth of 2.7% shows businesses are hedging, not halting, their investment plans.

The Investment Playbook: Rotate to Stickiness, Avoid Transportation Traps

The message is clear: core sectors with order momentum are the anchors of recovery.

Buy: Machinery & Fabricated Metals
- Caterpillar (CAT): Leverages global infrastructure spending and machinery demand.
- Nucor (NUE): A fabricated metals leader benefiting from pre-tariff stockpiling.
- Deere (DE): Agricultural machinery orders are tied to long-term farm investment cycles.

Avoid: Transportation Volatility
- Boeing (BA): Its orders are backlog-driven, not forward-looking. A 45.7% plunge in nondefense aircraft orders in December 2024 shows how fleeting its "growth" can be.
- General Motors (GM): Auto sales may stay elevated short-term, but tariffs will bite margins.

The PMI Signal: Modest Growth, but a Turning Point

The S&P Global PMI for April paints a mixed picture: manufacturing edged up to 50.7, while services dipped to 51.4. Yet core capital goods shipments grew 0.3% in March, supporting the idea that businesses are reinvesting in productivity tools even as services slow. This is a contrarian edge: when headlines fret over slowing services, the durable goods data whispers that manufacturing's fundamentals are holding.

Final Call: Bet on Stickiness, Not Volatility

The data's subtext is loud: core capital goods demand is the real engine of recovery. Investors fixated on transportation's noise risk missing the signal. Rotate capital into machinery and metals—sectors with order momentum, replacement cycles, and tariff hedging—while avoiding transportation-linked equities tied to one-off booms. The next leg of economic resilience will be built on sticky demand, not cyclical hype.

Act now, before the market catches up.

Note: Past performance does not guarantee future results. Consult your financial advisor before making investment decisions.