Increased Spending Could Boost Industrial ETFs in 2017

The Industrial Select Sector SPDR (NYSEArca: XLI) surged 20% last year, underscoring the strength of cyclical sectors, but that does not mean XLI and rival industrial exchange traded funds are limited heading into 2017. The opposite may be true.

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).

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.

Increased infrastructure spending is also seen as a catalyst for industrial stocks and ETFs.