It might not be a full-fledged revolution, but the industrial sector seems to at least be rebelling against Wall Street’s low expectations.
Of all the major groups in the market, analysts entered the current earnings season gloomiest toward this bucket of stocks. Two major tracking firms, Thomson Reuters and Factset, both published surveys earlier this month showing consensus estimates for industrial profit declines of 5 to 6 percent. That was supposed to badly lag the broader S&P 500’s growth of 9 to 10 percent.1
But industrials have crushed those expectations, and traders are scrambling to catch up. The sector, in fact, has become this month’s surprise runaway leader with a 2.5 percent gain -- more than twice the S&P’s 1.1 percent gain over the same period.
What did the street miss? Several major trends have emerged.
First, there’s been a runaway party in the transportation area. While United Continental’s (NYSE: UAL) passenger kerfuffle grabbed plenty of headlines, traders focused on blowout monthly numbers from rival American Airlines (NASDAQ: AAL).2 Then railroad operator CSX (NYSE: CSX) stunned to the upside, with earnings, revenue, and guidance all blitzing expectations.3
Machinery stocks exploded to life yesterday after Caterpillar (NYSE: CAT) reported its first top-line growth in over two years and forecast more gains going forward. It leapt almost 8 percent to $104.42, and is now back in triple digits for the first time in over two years.4 Related companies like Deere (NYSE: DE) and Terex (NYSE: TEX) also surged.
Source: OptionsHouse by E*TRADE
If the glass has proven half full in the broader industrial sector, investors can’t be blamed for thinking it’s three-quarters full in one particular subset: tools. Sure, companies like Illinois Tool Works (NYSE: ITW), Stanley Black & Decker (NYSE: SWK), and Snap-on (NYSE: SNA) may be somewhat obscure, but all three have dazzled in the last week.
Then you have aerospace. Rockwell Collins (NYSE: COL) jetted past expectations and raised guidance as management wrings synergies from its recent acquisition of B/E Aerospace.5 Analysts saw the potential for a turn in aerospace business at Honeywell (NYSE: HON), which also broke out to new highs after beating estimates last Friday.6
The interesting thing about HON is that it’s a conglomerate, and it also reported gains in its building products. Construction-materials company Masco (NYSE: MAS), the name behind brands like Behr paint and Delta faucets, thrashed estimates as well yesterday, and found itself back to its highest levels of the year.
In summary, traders might not have expected it, but industrial stocks have given the bulls plenty to chew on this earnings season.
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1. FactSet: Earnings Insight. 4/13/17. Thomson Reuters: This Week in Earnings. 4/13/17.
2. Marketwatch: American Airlines' stock rallies after upbeat traffic data. 4/11/17.
3. Reuters: Railroad CSX stock jumps on earnings, share buyback; CEO sees efficiencies. 4/20/17.
4. Reuters: Caterpillar's profit trounces estimates; shares jump. 4/25/17.
5. Credit Suisse: Rockwell Collins, Inc.: Solid momentum as BEAV integration begins. 4/21/17.
6. Reuters: Honeywell profit beats; shares hit record high. 4/21/17.