Overtime
Industrials
Good morning,
Today, we’re taking industrials into Overtime. The sector has been at the forefront of the market rotation in recent weeks, and the third-best performing sector since June started, trailing only financials and healthcare.
It’s also the third-best performing sector YTD, and has been a quiet driver of this bull market, as the only sector besides technology to outperform the S&P 500 over the trailing two years.
Most relevant to us now, though, is that the sector broke out last month and is now retesting that breakout. As long as it holds, investors should expect more gains in the second half.
Today’s report will review:
Top-down technicals
ETF sub-groups
and top single-stock plays
Let’s get into it!
Top-down technicals
XLI is retesting its recent breakout
As noted in yesterday’s Playbook, $179 is first support, and ideally, XLI holds here. If it can’t, the broken downtrend line and 50-DMA come into play near $176. The current measured target for XLI is $200.
Neutral relative strength
Trend-following any relative strength in industrials has been a tough bet recently, and the XLI:SPY ratio currently sits in the middle of a six-year trading range. At face value, that would suggest this is a sector investors are best off market-weighting relative to their benchmarks.
Both our ETF portfolios are about 1% overweight the sector following last week’s trades, a small overweight as we diversify exposure away from technology and the Mag 7.
Industrials have been stronger in equal-weight terms
Have is the key word here. On an equally-weighted basis, industrials have been a consistent source of leadership. But that may be changing as the slope of the 200-DMA (a less-noisy measure of trend) has rolled over for the first time since 2022.
There’s a similar trend for small-cap industrials relative to the Russell 2000👇
