Despite calls that a strengthening dollar and a decline in oil prices would hurt the industrials sector, industrial-related exchange traded funds have been outperforming the broader market over the past month.
The Industrial Select Sector SPDR (NYSEArca: XLI) is up 8.3% over the past month, compared to the 6.5% rise in the S&P 500 Index. Additionally, on Monday, XLI was among 133 other ETFs that touched new all-time highs.
“I continue to believe the U.S. manufacturing industry is witnessing slow and steady improvement. It’s small relative to the overall economy, but manufacturing has been and continues to be one of the real bright spots in the U.S. economy,” Morningstar analyst Robert Johnson said.
The industrial sector is gaining momentum even as market observers argue that a strong greenback and falling oil prices would weigh on this area of the market.
Historically, the industrial sector have rebounded in periods when the U.S. dollar depreciates. Consequently, this should suggests that industrials would be negatively correlated to the dollar. However, industrials did not seem to bat an eye, even as the PowerShares DB US Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the U.S. Dollar Index, has gained 3.4% over the past month. [Sector ETFs Hoping for Dollar Reversion]
Additionally, according to Deutsche Bank, lower fuel prices would weigh on industrial goods as lower corporate capital expenditure, notably from the energy sector, cuts into the industry, Financial Times reports.
Supporting the sector, aerospace and defense, which make up 25.6% of XLI, are holding up despite government budget cuts. Emerging market demand for sophisticated jet fighters could could help shore up any shortfalls in the U.S., writes John Persinos for InvestorPlace. Additionally, renewed tension in so-called hotspot areas and wary Chinese neighbors are also adding to new orders.
According to a Stockholm International Peace Research Institute report, U.S. generates more foreign sales of weapons systems than any other nation on the planet, with aircrafts among the country’s quickest-growing military exports.
Additionally, the auto industry remains another key component of the industrials sector. While sales have been off to a slow start this year due to the bad weather conditions in the early months, sales are rising due to improved economic conditions, low rates and cheap gas, RubberNews reports. According to the National Automobile Dealers Association, U.S. new vehicle sales are expected to grow to 16.9 million in 2015 from 16.4 million this year. [November’s Best Sector ETFs]
Industrial Select Sector SPDR
For more information on the industrials sector, visit our industrials category.
Max Chen contributed to this article.