We continue to recommend overweighting the Industrials sectors in the S&P 500, the S&P 400, and the S&P 600. Granted, their valuation multiples are high, but so are their earnings growth rates. The sector's three major indexes all remain on solid uptrends that started in 2022 (chart).
The S&P 500 Industrials sector is up 11.9% ytd, the third-best performing sector behind Energy and Materials (chart). Thursday's March industrial production report showed a 0.5% m/m decline. However, the decline was driven by weather-related utility output and a drop in motor vehicle production, which should rebound in April since auto sales were strong in March. The index remains near its all-time high and is up 0.7% y/y.
Onshoring, supply-chain diversification, defense rearmament, and the energy infrastructure demands of AI are creating a multi-year capex boom that the sector hasn't seen in decades. It's no coincidence that the S&P 500’s three best-performing sectors so far this year are Energy, Materials, and Industrials. The structural story is compelling.
Consider the following:
