Although investors have been favoring late-cycle, value sectors for much of 2014, the industrial sector has been surprisingly weak.
While not in the red, the Industrial Select Sector SPDR (NYSEArca: XLI) is the second-worst of the nine sector SPDR ETFs on a year-to-date basis. Only the Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) has been worse.
Earnings season has brought some dark clouds to the industrial sector and for ETFs such as XLI and the Vanguard Industrials ETF (NYSEArca: VIS). Now, investors need to be mindful of deteriorating technicals for the sector. [Industrial ETFs Look Firm]
“This chart clearly represents the technical significance of this relative strength breakdown as both the intermediate and longer-term supports were violated. The former shows the downside resolution to this 8-month symmetrical triangle pattern (dotted lines). The second is the violation of a 2-year uptrend channel (solid lines),” according to J. Beck Investments.
Chart Courtesy: J. Beck Investments
It is easy to understand the concern for industrial ETFs with some of the sector’s marquee names coming off recently lethargic performances.
Amid a spate of earnings reports and warnings that have not been met with cheer, some of the biggest industrial stocks tumbled last week. The dour results include a 3.4% for Boeing (NYSE: BA), a 4% slide for United Technologies (NYSE: UTX), a 4.5% decline for Caterpillar and a 1.5% loss for General Electric (NYSE: GE).
Those stocks combine for nearly 14% of the Dow Jones Industrial Average. Specific to industrial ETFs, those names combine for about 21% of VIS. [Problems for the Dow ETF]
Investors are starting to show their distaste for industrial ETFs. Since the start of the third quarter, VIS has lost $9.7 million in assets while $942.1 million has been pulled from XLI. That after XLI was the tenth-best ETF in terms of second-quarter inflows with $1.44 billion in added assets.
Vanguard Industrials ETF
