Top Charts and Trade Ideas from the Industrials Sector - 1/24/2024
A surface-level glance at stock market returns over the past year might tell you that gains have been limited to a handful of mega cap growth stocks. Fortunately, our work never stops at the surface, and that’s why we know the ‘only a handful of stocks’ narrative isn't true. It doesn’t take much digging to find out how strong the Industrials sector is.
For the last year, the Industrials on an equally weighted basis have tripled the return of the equal weight S&P 500 and trail only the Information Technology sector.
Here is the equal weight Industrials sector compared directly with the equal weight S&P 500. This is a textbook consolidation within an ongoing uptrend, and highest likelihood outcome from here is a resolution to the upside. We’re looking for more outperformance from within the Industrials sector.
Measures of breadth confirm the underlying strength. Nearly 90% of S&P 500 Industrials sector stocks are above their 50, 100, and 200-day moving averages. Only the Financials sector is better across the board.
Grindstone Intelligence is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
And even further beneath the surface, NO sector has been better than the Industrials when it comes to the small cap space. They’ve risen 22% over the last 12 months, 4x that of the benchmark small cap index.
Here’s a closer look at that small cap dominance from the Industrials. The uptrend couldn’t be much cleaner, and although momentum failed to reach overbought territory on the most recent high (creating a bearish momentum divergence), RSI hasn’t dropped to oversold levels in more than a year.
Unfortunately, all that underlying strength hasn’t translated to outperformance in the large cap index. Thanks to the dominance of mega cap Tech, the market cap weighted Industrials sector has trended lower relative to the market cap weighted S&P 500 for most of the last year.
But just because the large cap industrials have lagged of late doesn’t mean they’re doing poorly. Of the 11 S&P 500 sectors, the Industrials are one of just two that have surpassed their 2022 highs:
In this ongoing bull market, we’re looking for stocks to buy in the Industrials sector.