Rusting Out?

Is the industrial sector over?

Photo: Dave Meier. Source: Picography

Industrial stocks have gone sideways relative to the market for two decades. They lagged during the internet bubble, boomed with the BRICs mid-decade, suffered with everyone else in the Financial Crisis, and have been gradually recovering since. But even though their profit margins are expanding, the sector has just moved up or down with the general market. Is there any dynamism left?

Industrial companies feed our non-technology capital spending. When countries want to build bridges, they use big earth-movers; when airlines expand, they buy new aircraft and jet engines. And railroads are the most efficient way to ship stuff across the country. But over the past five years capital spending has been dormant. Companies have been reluctant to expand their own capacity and build new factories.

At the same time, emerging countries have slowed their torrid growth. While they are are still growing, they are shifting their economies from being export-driven to a consumer-based model. In addition, the lower gas prices that cost us less at the pump mean that oil companies don’t need as many drilling rigs or as much other equipment. Finally, a strong dollar means company earnings overseas don’t translate into as many dollars back home. The strength of the dollar is pulling profits lower.

All this means that industrial firms will face challenges going forward. That doesn’t mean investors should just sell out—a diversified portfolio has exposure to all the major sectors. Just don’t be surprised when the road gets bumpy.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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By | 2017-07-17T12:22:59+00:00 April 13th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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