LIVE MARKETS-After strong gains, can industrials keep going?

ReutersJun 24, 2025 5:35 PM

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AFTER STRONG GAINS, CAN INDUSTRIALS KEEP GOING?

Investor interest has been strong in the industrials sector, with a big pickup in performance since the April "Liberation Day" low, when President Donald Trump announced a big package of import duties, Jefferies strategists write in a note.

The S&P 500 industrials sector .SPLRCI is up 9.7% so far this year and is leading gains among major S&P 500 sectors.

That's thanks in part to aerospace and defense companies that have climbed as the Middle East conflict has intensified. The small cap S&P 600 industrials sector .SPSMCI has risen since early April but remains down 3.1% for the year to date.

But the firm has a different outlook for industrials depending on size - it is underweight large caps, while it is overweight small caps.

Valuations are stretched in both large and small. "The winners trade at 4.5x sales in large, 2.4x in small, both above average. The difference between the winners and the losers is at over 4x vs. a normal level of 2x," the strategists write.

But earnings trends appear better for small caps, they say.

"Across small, earnings have held up better than the overall universe," they write.

While analysts have cut earnings estimates "across the board" following the April 2 tariff announcements, the 2025 earnings growth rate ticked up recently for small-cap Industrials and has stayed somewhat consistent in large," the strategists write.

(Caroline Valetkevitch)

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