The Industrial SPDR ETF (XLI) and rival industrial ETFs have been hampered by the US/China trade war and fears that the global economy is stalling with some countries flirting with recessions. However, some analysts still believe one corner of the industrial space looks attractive: aerospace and defense stocks.

Among the high-fly acts in the aerospace ETF group is the SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) and the iShares U.S. Aerospace & Defense ETF (BATS: ITA).

XAR seeks to provide investment results that correspond generally to the total return performance of the S&P Aerospace & Defense Select Industry Index, which represents the aerospace and defense segment of the S&P Total Market Index (“S&P TMI”). In seeking to track the performance of the S&P Aerospace & Defense Select Industry Index (the “index”), the fund employs a sampling strategy.

ITA seeks to track the investment results of the Dow Jones U.S. Select Aerospace & Defense Index composed of U.S. equities in the aerospace and defense sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index, which measures the performance of the aerospace and defense sector of the U.S. equity market. Aerospace companies in the index include manufacturers, assemblers and distributors of aircraft and aircraft parts.

Talking Technicals

“Looking underneath the surface, aerospace and defense flags favorably in our work. I think you’re looking to buy those names on this market pullback and steer clear of the transports,” said Oppenheimer technical analyst Ari Wald in an interview with CNBC.

The Federal Reserve’s recent interest rate cut could be a boost for defense names because industrials usually benefit from lower rates. Some of the sectors likely to receive a boost after the Fed starts cutting rates include Materials, Industrials, Consumer Discretionary, and Consumer Staples.

“The industrials sector has managed to perform in line with the S&P 500 this year even as the uncertainty of trade policy with China keeps investors wary. The XLI ETF is up 17% in 2019, though down 2% in the past three months,” according to CNBC.

For more information on the aerospace industry, visit our aerospace & defense category.

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.

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