The Industrials sector has been sensitive to fluctuations in the U.S.-China trade relationship this year. While some trade agreements have been reached (at least tentatively) between the United States and its trading partners—notably with Japan, South Korea, Canada and Mexico—continued world trade weakness may threaten the profitability of this globally oriented sector.
The Industrials sector has suffered from concerns about slowing global economic growth, with industrial output faltering as a manufacturing downturn has broadened globally. This has prompted business leaders around the world to put capital spending on hold, stalling revenue growth.
The sector does have positives. Corporate balance sheets remain relatively cash-rich, which should help push management teams to invest in new, more-efficient equipment to help offset weaker productivity. Also, relatively low manufacturing inventories signal the possibility of a demand-inspired rebuilding phase.
Overall, our concerns about the sector have been growing, but we are also aware that even a modest improvement in trade relations with China could result in a fairly sharp near-term rally. In an attempt to balance those risks, we are keeping our marketperform rating on the Industrials sector.
What do the ratings mean?
The sectors we analyze are from the widely recognized Global Industry Classification Standard (GICS®) groupings. After a review of risks and opportunities, we give each stock sector one of the following ratings:
- Outperform: likely to perform better than the broader stock market*
- Underperform: likely to perform worse than the broader stock market
- Marketperform: likely to track the broader stock market
Want to learn more about a specific sector? Click on a link below for more information or visit Schwab Sector Views to see how they compare. Clients can log in to see our top-rated stocks in the Industrials sector.
* As represented by the S&P 500 index
What You Can Do Next
- Review your sector allocation. If you aren’t sure how to analyze your sector weightings, a Schwab Financial Consultant can help.
- Talk to us about the services that are right for you. Call us at , , or .