U.S. stocks are hitting all-time highs, but conspicuous by its absence from the recent rally is the industrial sector.
On Monday, nearly 30 sector exchange traded funds hit new all-time highs, running the gamut of financial services to health care to technology and several other sectors. No industrial ETFs were in that group, highlighting the sector’s recent struggles at a time when a plethora of sector ETFs are shining. [Dim Outlook for Industrial ETFs]
Industrials are the fifth-largest sector weight in the S&P 500 at almost 10.4% and somehow the Dow Jones Industrial Average and the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) have managed to run to new highs even with four industrial stocks combing for 18.4% of DIA’s weight found among the ETF’s and index’s top-10 holdings.
Over the past 90 days, the S&P 500 is up nearly 4.5% while the Dow is up 2.4%. Over the same period, the Industrial Select Sector SPDR (NYSEArca: XLI), the largest industrial ETF by assets, is higher by just 0.9%. Waning momentum couple with the sector’s laggard status could be harbingers of more weakness to come for industrial stocks and ETFs.
“Some times diverging momentum can be a sign of a short-term high in the markets. The Industrials ETF XLI experienced falling momentum while prices were moving higher back in 2007 & 2011, which resulted in lower prices in months to come, once support and its 200MA was broken to the downside,” notes Chris Kimble of Kimble Charting Solutions.
The sunny side of the industrial ETF story is XLI has not violated its uptrend that dates back to 2009. Additionally, the ETF resides nearly 5% above its 200-day moving average. XLI took a brief look below that moving average at the start of August, but this month the ETF has jumped nearly 5%. [Industrial ETFs Weaken]
Still, the waning momentum is an issue investors must consider before jumping into XLI and other industrial ETFs.