Industrials Sector Rating: Marketperform

What is the industrials sector?

It includes aerospace and defense, building products, electrical equipment and machinery, as well as transportation, construction and engineering services.

The Industrials sector was sensitive to fluctuations in the U.S.-China trade relationship last year. While some trade agreements have been reached (at least tentatively) between the United States and its trading partners—notably with China, Japan, South Korea, Canada and Mexico—continued world trade weakness and the impact of the coronavirus epidemic 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. We had begun to see some stabilization in the global economy prior to the spread of coronavirus, and it’s possible that recovery will be merely delayed by the epidemic.

Fundamentals remain sound, with corporate balance sheets relatively cash-rich. This 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, we are keeping our marketperform rating on the Industrials sector.

Sector Overview: Industrials

Note: Each of the sector lenses shown above—Macroeconomic, Value, Fundamental and Relative Strength—is both intuitive and evidenced-based in nature. Within each, there are a varying number of factors. The Macroeconomic lens includes sector sensitivities to interest rates, stocks and the value of the U.S. dollar; the outlook for each of these is determined by the Schwab Center for Financial Research (SCFR)’s Asset Allocation Working Group, which uses a mosaic approach of quantitative and qualitative considerations. Value includes six different valuation metrics that provide a holistic perspective on current valuations relative to each of the sectors’ own historical valuations, as well as relative to the other sectors. Fundamental provides insight as to how efficiently the companies within each sector use invested capital to produce earnings; this historically has been informative as to future relative performance of the sectors. Finally, Relative Strength measures momentum of the individual sectors against all of the other sectors. We also consider the data in the context of factors outside the scope of these indicators—for example, geopolitical risk or central bank policy changes.  

Source: Charles Schwab, as of 03/05/2020.

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

Communication ServicesHealth Care
Consumer DiscretionaryInformation Technology
Consumer StaplesMaterials
EnergyReal Estate
FinancialsUtilities

 

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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. Supporting documentation for any claims or statistical information is available upon request.

All expressions of opinion are subject to change without notice in reaction to shifting market or other 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.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see www.schwab.com/indexdefinitions.

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk including loss of principal.

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