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.
Related: Government Programs Send Aerospace ETFs Flying
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.
Rivals to XLI include the Fidelity MSCI Industrials Index ETF (NYSEArca: FIDU), iShares U.S. Industrials ETF (NYSEArca: IYJ) and the Vanguard Industrials ETF (NYSEArca: VIS).
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.
[related_stories]Headwinds remain for the industrial sector. The sell-off in the oil markets has weighed on capital spending from the energy sector as producers hold off on new projects, pressuring U.S. industrial companies and sector-related exchange traded funds.
However, if the dollar falls as markets price in the Federal Reserve not being able to raise interest rates in December following Trump’s victory, industrials could benefit because some members of the sector generate substantial portions of their revenue overseas.
Related: Lingering Issues For Industrial ETFs
“Industrials are focused on building products the world will consume as cheaply as possible. Companies have made significant investments in Mexico. With higher tariffs, more stuff may be made in America on the margin, but companies are not going to shift away suddenly from Mexico,” according to a T. Rowe Price note featured in Barron’s.
Industrial Select Sector SPDR
