Industrials Hold Flat Even as Most Member Stocks Advance

EasyAlpha grades the stocks in Industrials, and only 28.4% of the graded weight sits in companies graded A or B. On Monday, October 12, 60.0% of the sector's S&P 500 members moved higher, yet the sector ended the session at -0.1%. The Industrial Select Sector SPDR Fund, an exchange-traded fund that tracks the sector under the ticker XLI, closed at -0.1%. Gains in names such as Textron Inc at +2.2% were balanced by a steep retreat in Bloom Energy Corp, which finished at -6.5%. That flat finish came as trading across the broader market showed little collective direction, even as 7 of the 11 sectors rose. Our sources show no reported driver for the sector's move.

Corporate announcements across the sector were concentrated in defense contracting. L3Harris won a $250 million contract for rocket propulsion units. Separately, the company announced that it will provide night-vision systems to the U.S. Army.

Even though a majority of sector constituents logged gains, the equal-weighted sector move also stood at -0.1%. When equal-weighted and market-cap-weighted performance match closely, it indicates that smaller companies moved in line with the sector's largest holdings rather than diverging from them.

The session continues a longer stretch of quiet trading for the sector. Over the past month, the fund stands at -1.9%, and over the past six months it sits at -2.4%. In EasyAlpha's grading, companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. With only that modest share in those top two tiers, the majority of the portfolio sits in companies graded C or lower.

With an expense ratio of 0.08%, XLI provides low-cost exposure to the sector across $29.8 billion in assets, though holding the fund means accepting a portfolio where most assets sit outside the highest quality grades.