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Industrial ETFs Are Outperforming Among U.S. Sector Picks

This article was originally published on ETFTrends.com.

For the first time in five years, industrial stocks and sector-related ETFs are on pace to lead stock market gains on a quarterly basis.

Year-to-date, the Industrial Select Sector SPDR (XLI) , which tracks S&P 500 industrial stocks, increased 16.0% while the widely observed SPDR S&P 500 ETF (SPY) gained 9.8%.

According to Dow Jones Market Data, the industrials group has not been the best performer in any quarter since the end of 2013 and has only ever taken the lead four times, the Wall Street Journal reports.

Industrial stocks, which are currently on pace for their best quarter since the third quarter of 2009, have never led the benchmark U.S. index for a full calendar year.

Furthermore, the industrials sector is beating the next best sector, the energy group, by almost 3 percentage points - the widest gap between industrials and the second-place sector in any of the quarters industrial stocks have outperformed.

Strength in industrial segment

Market observers warned that the strength in the industrial segment, which is closely tied to the health of the global economy, is notable due to the lingering uncertainty over the accuracy of corporate forecasts in light of the ongoing trade negotiations between the U.S. and China. Furthermore, traders need to take into account the slowdown in global markets, notably in Europe and Asia, along with industrial production figures for January that revealed a sharp dip.

Some have already warned that the outperformance in industrials could be short lived if the trade deal between the U.S. and China stalls where upon industrial companies will likely face increased costs and a slower outlook.

The U.S. and China are coming closer to a deal after meeting for a week in Beijing. Negotiators have stated that talks will continue in Washington next week.

“What’s different about this year than I think many years in the past is we have many more unknowns,” Honeywell International Inc. Chief Executive Darius Adamczyk said on the company’s earnings call.

For more information on the industrial sector, visit our industrial category.