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Industrials Ended 2019 On A Strong Note, But Are Some Segments In Better Shape Than Others?

Direxion

Few would likely cite the industrial sector as a standout through 2019. Given the ongoing 737 Max trouble faced by Boeing Co. (NYSE: BA), the multi-year lows experienced by General Electric Company (NYSE: GE) and 3M (NYSE: MMM) and a slew of negative revisions from freight and logistics companies like Wabtec Corporation (NYSE: WAB), Landstar System, Inc. (NASDAQ: LSTR) and C.H. Robinson Worldwide, Inc. (NASDAQ: CHRW), you wouldn’t be faulted for believing the sector was one of the market’s chief laggards in 2019 alongside energy or materials.

But despite high-profile headwinds, the industrial sector was actually nearly on-pace with the broad market through 2019, with the Industrial Select Sector Index (IXI) posting a 26% gain compared to the broad market’s 30% climb. Benefitting from this growth are ETFs that follow the index like the Direxion Daily Industrials Bull 3X Shares (NYSE: DUSL), which closed out the year to hit new 52-week highs.

Now, with most of the major industrial names having closed the books on 2019, the sector is hoping to carry that momentum into 2020. However, guidance for the fiscal year has been scattered, with some like Delta Air Lines, Inc. (NYSE: DAL) and Kansas City Southern (NYSE: KSU) posting optimistic forecasts while others like Caterpillar Inc. (NYSE: CAT) or the aforementioned 3M foreseeing less robust growth ahead.

So while the broad industrial sector is posting some mixed signals thanks to the obscure global economic outlook, investors could instead navigate the market through some of its constituent industries.

Defense

Although Boeing has more than its share of trouble weighing on its stock price, its problems are unique when it comes to the rest of the defense contractors. The Direxion Daily Industrials Bull 3X Shares (NYSE: DUSL) is up more than 36% over the past six months.

Some of this traction can be attributed to a series of high-value defense and aeronautic contracts awarded to the likes of Honeywell International Inc. (NYSE: HON) and Lockheed Martin Corporation (NYSE: LMT). The recent military dust-up with Iran also prompted increased attention to the sector. Those companies, along with Raytheon Company (NYSE: RTN) and Northrop Grumman Corporation (NYSE: NOC) have all surged in recent weeks thanks to solid earnings and positive guidance through 2020.

Transportation

Typically a segment prone to benefit from an environment of low energy prices and high consumer spending, transportation is actually showing the most weakness of all the industrial segments. 

The Direxion Daily Transportation Bull 3X Shares (NYSE: TPOR) is only up about 20% over the past six months.

Part of the weakness in the industry is the emergence of the contagious Chinese coronavirus, which recently hit shares of Delta Air Lines, Inc. (NASDAQ: DAL), United Airlines Holdings, Inc. (NASDAQ: UAL) and Alaska Air Group, Inc. (NYSE: ALK) hard and could be a continued headwind for airline travel in the near-term. Meanwhile, tighter margins and increased delivery competition from Amazon have put similar pressure on FedEx Corporation (NYSE: FDX) and United Parcel Service, Inc. (NYSE: UPS). To top it off, weak fiscal guidance for freight companies like J.B. Hunt Transport Services, Inc. (NASDAQ: JBHT) and Landstar System makes transportation a potentially volatile industry for the immediate future.

Robotics

An area of industrials that often goes overlooked, the robotics industry has maintained a fair amount of traction throughout the past year. The Direxion Daily Robotics, Artificial Intelligence & Automation Index Bull 3X Shares (NYSE: UBOT) is up almost 70% over the past 6 months.

Of course, the strength of semiconductor components like NVIDIA Corporation (NASDAQ: NVDA) accounts for some of this strength. However, the trend toward increased automation, both industrial and process automation, has helped to push major manufacturers like ABB Ltd (NYSE: ABB), OMRON Corporation (OTCMKTS: OMRNY) and Fanuc Corporation (OTCMKTS: FANUY) each to new year-highs. And, like the larger industrial sector as a whole, the robotics and automation industry’s continued strength will rely on a stable global economic picture so that companies are comfortable investing in the often costly automation process.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted.

For standardized performance and the most recent month end performance click here (Provide link to www.Direxion.com/etfs )

An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.

Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment. 

Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

The “Industrials Select Sector Index” is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by Rafferty Asset Management, LLC (“Rafferty”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and

sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Industrials Select Sector Index.

Direxion Shares Risks - An investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration that results from an ETF’s investments in a particular industry or sector which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. The ETFs do not attempt to, and should not be expected to, provide returns which are a multiple of the return of their respective index for periods other than a single day. For other risks including leverage, correlation, daily compounding, market volatility and risks specific to an industry or sector, please read the prospectus.

Distributor: Foreside Fund Services, LLC.

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