The Industrials Tell the Story of the Economy

The industrials sector has pulled back recently along with nearly every other sector in the stock market. But that may be a good thing...

A lot of investors are buying into the idea that a new bear market is about to start and threaten the gains from the first half of this year.

But if you take a step back and look at the facts, you can see that a lot of good things are happening beneath the surface.

For example, the action in the industrials sector can tell us a lot about how the economy is really doing...

Industrial stocks include all kinds of businesses – everything from construction and manufacturing, to freight and logistics, to aerospace and defense, and more.

We can track this part of the market using the Industrial Select Sector SPDR Fund (XLI). This exchange-traded fund ("ETF") is up 7% so far this year.

That's nine percentage points behind the S&P 500 Index's 16% climb. But it's only about 5% below its August 1 all-time high. And even more important, it's hovering just above its long-term support near $104 (the blue line in the chart below)...

Caterpillar (CAT) is XLI's largest holding and the world's largest manufacturer of heavy equipment. It acts as a bellwether in the industrial space. And it's a great proxy for the health of not only the U.S... but the entire global economy.

The company's stock surged to a new all-time high in early August on the back of solid earnings. Like many other industrials, it's now pulling back to support. But year to date, Caterpillar is up roughly 16%.

Union Pacific (UNP) – the country's largest public railroad – is another good example. It also rallied to its best level in nearly a year after reporting strong quarterly numbers. And even after succumbing to the recent pullback, the stock is still up 3% in 2023.

We know that stocks never go straight up. They have pullbacks even during the strongest bull markets. So it's OK if your portfolio holdings aren't hitting new highs every day.

But right now, the bigger point is this... companies like Caterpillar and Union Pacific wouldn't be reporting impressive quarterly earnings if the economy was really falling out of bed.

Pullbacks in the midst of long-term bull markets shouldn't be viewed with fear. They should be considered some of the best buying opportunities available to investors.

And the recent action in the industrials segment only backs up that claim.

I could go on and on about the very loud – and oftentimes wrong – perma-bears who preach "the sky is falling" over and over again. But I'll never tell you who to listen to in the market.

What I will do is remind you that the charts never lie...

And while many folks are worried about the Federal Reserve right now – with its next meeting and interest-rate decision coming up this week – the economy and jobs market remain strong. That should bode well for industrials in the future.

So please, never allow fear to sway your investment decisions. And don't ignore the action in the industrial space right now. It's painting a very different picture of the economy than what you'll hear in the financial media.

Here's to the future,

Matt McCall

Editor's note: We're seeing several signs that the economy is stronger than a lot of folks today would dare to believe. History... momentum... investor sentiment... technical analysis... and more – they all point to the same conclusion right now. And according to Matt and Brett Eversole, it means a twist is coming for stocks that you don't want to miss...

They recently went on camera to reveal why the naysayers are wrong about this bull market... and to show you how 10 stocks have the potential to make you 10x your money in the coming weeks and months. Get the details here while you can.

Further Reading

The Dow Jones Industrial Average recently finished one of its longest streaks of up days in history. This less "exciting" index doesn't get much attention – and it underperformed tech stocks in the first half of the year. But history shows we should pay attention after moves like these... Learn more here.

Short-term pullbacks can present great buying opportunities. Investors recently bailed on one blue-chip stock. It fell roughly 20% in recent months. However, based on one indicator, sentiment toward this stock could soon swing from "bad to less bad"... Read more here.

Market Notes



Mastercard (MA)... credit cards
Blackstone (BX)... asset management
Alphabet (GOOGL)... tech "World Dominator"
Amazon (AMZN)... online-retail king
Intel (INTC)... chipmaker
Workiva (WK)... cloud services
Eli Lilly (LLY)... pharmaceuticals
Walmart (WMT)... "World Dominator" of discount retail
TJX Companies (TJX)... discount department store
Cintas (CTAS)... uniform supplier
Toyota Motor (TM)... automaker
Honda Motor (HMC)... automaker
CAE (CAE)... flight training
Comfort Systems USA (FIX)... plumbing and electrical
Constellation Energy (CEG)... utilities
SLB (SLB)... oil and gas
Phillips 66 (PSX)... oil and gas
Hess (HES)... oil and gas
Cameco (CCJ)... uranium
CONSOL Energy (CEIX)... coal


RTX (RTX)... "offense" contractor
Pfizer (PFE)... pharmaceuticals
Bristol-Myers Squibb (BMY)... pharmaceuticals
Etsy (ETSY)... online marketplace
Dollar General (DG)... discount retailer
Dollar Tree (DLTR)... discount retailer
Conagra (CAG)... packaged foods
J.M. Smucker (SJM)... packaged foods
Chewy (CHWY)... pet products
Crown Castle (CCI)... communications REIT