The Industrial Select Sector SPDR (NYSEArca: XLI) is down just 1.6% year-to-date, but that is good for one of the more middling performances among the sector SPDR exchange traded funds. With the U.S. dollar gaining strength, it is becoming harder to get excited about the industrial sector.

XLI has been stymied on multiple fronts. In no particular order, tumbling oil prices have pinched demand for oil services provided by some large- and mega-cap industrial names, such as Dow component General Electric (NYSE: GE), also XLI’s largest holding.

On a related note, slack commodities demand has been a drain railroad operators, an industry group that accounts for nearly 10% of XLI’s weight. And in a perversion of historical trends, airline stocks have not been responsive to oil’s slump and that industry is 5% of XLI’s weight. The good news is that airlines have popped over the past month, but XLI is going to need more help. [Airline ETF Ready to Soar]

A strong U.S. dollar and declining energy sector capital spending are among the issue plaguing industrial ETFs this year. U.S. manufacturing, which makes up 12% of the economy, could remain weak on the lingering effects of the dollar and fuel costs. [Industrial ETFs Could Also Slip On Oil]

“Talk about expectations. This quarter saw 12 of our 13 covered companies miss on revenue, 10 either lower FY15 EPS guidance or issue below-consensus FY16 guidance, and none raise growth guidance; yet 10 stocks outperformed during earnings season, 8 on the day of earnings,” said a Bernstein industrial analyst in a note posted by Ben Levisohn of Barron’s.

Industrial-sector exchange traded funds may take an indirect hit from the depressed oil prices as energy producers are forced to cut back on planned projects and spending for manufactured goods. 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.

Industrial Select Sector SPDR

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.