Industrials have shown “surprising strength,” even as recession fears mount, according to Yardeni Research. The S & P 500 ‘s industrial stocks have on average fallen a little less than 6% so far this year. That puts them in the middle of the pack among the 11 S & P sectors, but still a notable outperformance relative to the S & P 500’s loss of almost 17% in the same period. “The sector is benefiting from trends that should be tailwinds even if the economy suffers from a shallow recession,” Ed Yardeni, the firm’s president, said in a note to clients on Thursday. CNBC Pro screened for Wall Street’s favorite industrials. The screen encompassed all 73 stocks in the Industrial Select Sector SPDR Fund, and then searched for those with a buy rating from 60% or more of the analysts covering them, according to FactSet. Industrials are expected to post the second best earnings growth of the 11 S & P 500 sectors in 2023, Yardeni said. The CNBC screen found Alaska Air Group , Delta Airlines and Southwest Airlines all among analyst favorites, while Yardeni noted that airlines are expected to see the fastest earnings growth among industrials in 2023, almost doubling as air travel continues to rebound from the pandemic. All three carriers have lost value since the start of the year. Yardeni said aerospace and defense profits will trail only the airlines, climbing almost 46% as demand is driven by materiel to fight the war in Ukraine. Boeing will also help the sector, Yardeni said, as the company sees increased demand upon resolution of its MAX jet safety issues. That could mark a turning point for Boeing, whose shares through Thursday have risen 55% since a low in June. On Tuesday, lawmakers declined to extend a deadline that will impose new safety standards for two versions of the Boeing 737 MAX. Boeing previously said that not receiving an extension could mean both versions would be canceled, affecting about 1,000 orders. The MAX first returned to service in late 2020 after two deadly crashes early in 2019 resulted in the largest grounding in aviation history . Specialized industrial ETFs such as iShares U.S. Aerospace & Defense and Invesco Aerospace & Defense have both added value this year, up about 7% each. That’s in marked contrast to the broader market’s drawdown, pointing to the strength of industry even as the wider economy has slowed. — CNBC’s Fred Imbert and Jesse Pound contributed reporting.
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