Industrials May Be on the Mend


This post is for education purposes only and should not be interpreted as a trade recommendation.

Industrial stocks may be on the mend after a turbulent earnings season.

Some big companies in the sector, especially 3M (MMM), Caterpillar (CAT) and Lockheed Martin (LMT) got hammered following their results last month. Investors worried about margins, wrung their hands over tariffs and fretted that profit gains had reached a “high-water mark.”1

The sector-tracking SPDR Industrial ETF (XLI) initially washed lower as those fears played out. But last week it pushed back above both its 50-day moving average and a falling trend line in effect since February. That could make some chart watchers think momentum is turning more positive.

SPDR Industrial Fund (XLI) showing trend line and 50-day moving average.

Speaking of positive, the news flow has also turned chirpier. On Friday, for instance, Deere (DE) shook off early anxieties to rally almost 6 percent. United Technology (UTX), whose strong earnings report was ignored in April, also drew attention from activist investor Bill Ackman.

“Current indicators suggest a pickup in growth,” the Philadelphia Federal Reserve declared in its monthly manufacturing report. Bean counters also cited strong employment, higher bookings, longer delays in filling orders and better pricing at factories. The New York Fed echoed most of those points in its own report.

Then you also had strength in railroads and transports, another subset of the industrial sector.

Finally, take a look at Boeing (BA). The aerospace giant also chopped around after earnings but on Friday closed at its highest level in more than two months. It’s the top performing member stock in XLI over the last two years. Will it now help the rest of the sector take off?

Bottom line: This isn’t a recommendation and everyone needs to do their own homework. But there are signs things may be turning more positive in industrial stocks.

1. Chicago Tribune: ‘High-water mark’ comment from Caterpillar executive spooks investors. 4/25/18.

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.