There is a new leadership emerging – the S&P Industrials sector (XLI). S&P Industrials has led the markets on a year-to-date basis, rising 11.88%, or nearly double the gains of the S&P 500 Index (SPX +5.39% YTD). The sector is now the third best performing S&P sector behind S&P Energy (XLE +31.73% YTD) and S&P Financial (XLF +16.90% YTD).
There are catalysts behind the recent Industrials outperformance cycle. The first is there is a continued strong rotation from the growth sectors and high-end growth stocks into value and economically sensitive names. The second is the infrastructure stimulus package proposed by the Biden administration will benefit infrastructure and Industrial stocks.
The S&P Industrials is currently 8.86% of the overall SPX Index by market-cap weighting. It has now surpassed the Consumer Staples sector (6.18% market-cap) and is behind S&P Communication Services (10.78% Mkt-cap). As XLI gains market-cap share, it will attract the attention of money managers looking to rebalance their portfolios in anticipation of an economic recovery.
From a technical perspective, the current Relative Rotation Graph (RRG) chart shows XLI moving from the Weakening Quadrant to the Leading Quadrant, signaling strong relative strength reading and strong price momentum trend.
Another technical study, SCTR technical screen, suggests 13 S&P Industrial names appeared in the top 100 SCTR list. XLI has more stocks than the S&P Technology sector (XLK), which has 12 Technology names in the top 100 SCTR list. The Financial Sector (XLF) continues to dominate the top 100 SCTR list with 29 names, followed by Consumer Discretionary (XLY) with 18 stocks, and then Energy (XLE) with 14 securities.
Investors continue to favor interest rate-sensitive sectors (XLF and XLRE) and economically sensitive sectors (XLY and XLI). Attached below is the SCTR ranking of the S&P Industrial stocks from high to low. Despite the rotations, investors still need to be selective as some XLI stocks have rallied sharply and may need to consolidate their gains. Investors looking for ETFs to participate in the Industrials and Infrastructure investments are enclosed below:
Industrials ETFs: Industrial Select Sector SPDR Fund (XLI), Vanguard Industrial ETF (VIS), and iShares US Industrials ETF (IYJ).
Infrastructure ETFs: Global X US Infrastructure Development ETF (PAVE) and iShares US Infrastructure ETF (IFRA).
Top 12 S&P Industrial names within the top 100 SCTR list are GE (95.9 SCTR), URI (95.7), AAL (95.6), ALK (94.1), HWM (92.2), DE (91.8), GNRC (88.3), LUV (87.4), PWR (87.2), UAL (86.8), CAT (85.7), KSU (84.9), PH (81.9).