Count industrial stocks and ETFs among the groups getting a post-election bump in the wake of Republican Donald Trump’s shocking defeat of Democratic challenger Hillary Clinton.
One important ETF that rallied Wednesday was the Industrial Select Sector SPDR (NYSEArca: XLI).
Leading up to the election, industrials were seen as one of the sectors that could rally regardless of the outcome because neither Clinton nor Trump would want to rollback military spending and appear soft on homeland security.
Although the aerospace and defense industry is perceived as being beholden to Uncle Sam’s whims, the allure of late-cycle sectors, including industrials, in a rising rate environment remains in place. Industrials perform well when interest rates rise because rising rates can go hand-in-hand with economic growth.
In addition to political rhetoric, potential catalysts for aerospace ETFs include include, renewed airline pricing power evidenced by higher ticket prices, and more fees paid per traveler, increased airline profitability, new aircraft program launches and continued demand for aircraft models and technology.
Though there is some speculation about trade wars occurring with Trump in the White House, a scenario that would be bad for industrials, some market observers believe cooler heads will prevail and industrial stocks will grind higher.
“Industrials, materials, and auto are vulnerable to a response from our trade partners should overly aggressive executive actions be taken. No one wants a trade war and we are very doubtful that one will occur,” according to a Deutsche Bank note posted by Johanna Bennett of Barron’s.