Download the Schwab app from iTunes®Get the AppClose

Industrials Sector

Industrials Sector Rating: Marketperform

Industrials sector overview

Global manufacturing improvement appears to have leveled off, while U.S. manufacturing remains in expansionary territory. However, concerns about a trade war could put a damper on the group, although the tax cuts should help to dampen that potential disappointment.

Market outlook for the industrials sector

Global manufacturing largely remains positive but growth rates have slowed, as would be expected, with recent Purchasing Managers’ Index readings in most major countries staying in territory depicting expansion, but slipping from their highs. However, trade issues have continued between the U.S. and China, and that could threaten the profitability of this very globally oriented sector, with 45% of the sector’s revenue coming from foreign sources, according to Strategas Research, although the recent agreements between the European Union and the U.S. as well as China and the U.S. to at least temporarily freeze further tariff hikes and discuss freer trade and the USMCA agreement were positive developments.

In the U.S., the Institute for Supply Management's Manufacturing Index remained quite strong in its December release, rising to 59.3 reading, while the forward-looking new order component posted a strong, 62.1 reading, moving nicely higher despite concerns regarding the ongoing trade dispute with China. Anything above 50 means an expansion in manufacturing activity. However, there were hopes at the beginning of last year that fiscal stimulus would be forthcoming and those hopes appear to be diminishing with the rancor in Washington, which has the potential to be a temporary weight on the group, but this may be an area where agreements between the two parties are possible following the midterm elections—although we aren’t holding our breath!

Overall, we have concerns but they're somewhat balanced out, which results in our relatively neutral view.

Factors that may affect the industrials sector

Positive factors for the industrials sector include:

  • Potential productivity gains: 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.
  • Room for growth: Relatively low manufacturing inventories signal the possibility of a demand-inspired rebuilding phase.

Negative factors for industrials include:

  • More aggressive Fed action:
  • Should inflation start to reach concerning levels, the central bank could raise rates more aggressively, which would likely dent industrial shares.
  • Trade concerns:  As trade dispute rhetoric continues, the possibility still exists that a damaging trade dispute could ensue.

Clients can see our top-rated stocks in the industrials sector.

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.

Communications Consumer discretionary Consumer staples Energy
Financials Health care Industrials
Information technology Materials Real estate
Utilities

What You Can Do Next

Consumer Discretionary Sector Rating: Marketperform
Communications Sector Rating: Underperform
Communication Services Sector

Important Disclosures

Schwab Sector Views do not represent a personalized recommendation of a particular investment strategy to you. You should not buy or sell an investment without first considering whether it is appropriate for you and your portfolio. Additionally, you should review and consider any recent market news.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. Past performance is no guarantee of future results.

The S&P 500 Index is a market-capitalization-weighted index comprising 500 widely traded stocks chosen for market size, liquidity and industry group representation.

The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor's. GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc.

Markit Manufacturing Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index includes the major indicators of: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Institute for Supply Management (ISM) Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

(1218-8UV6)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.