Market Insights

While everyone has worried about tariffs and trade, a wave of positive news has emerged in the industrial sector.

Last night’s strong earnings report from CSX (CSX) was a case in point. America’s third-biggest railroad operator rolled past estimates on the top and bottom lines. Strong traffic (as cited on Market Insights in May) helped lift fares, letting management achieve a key profitability target more than a year early.

The results come as attention shifts to second-quarter earnings, with analysts predicting continued double-digit growth. There also seems to be a budding awareness that tax cuts from late 2017 are starting to drive investment. Will that belief overshadow tariff anxieties and make investors view the glass as “half full?”

In a little-noticed headline yesterday, Boeing (BA) raised its long-term forecast of aircraft demand. European rival Airbus made a similar announcement on July 6.

Strong quarterly results last week also gave industrial supplier Fastenal (FAST) its biggest rally of the decade. The main catalyst wasn’t cost cutting or price hikes, but simple unit growth. (They literally sold more widgets.) That could reveal a pickup in activity in the wider manufacturing sector when you consider the thousands of factories and construction firms serviced by FAST.

W.W. Grainger (GWW), a rival of FAST, also shot to a new high today after beating estimates and boosting guidance.

Similar comments from other companies seem to reflect the same sentiment. Azz (AZZ), for instance, provides galvanizing and welding services that tracks broader industrial activity. They crushed estimates on July 3 as bookings shot up 65 percent. Truck maker Navistar (NAV) also snuck out some decent numbers on June 5 and raised guidance thanks to “robust market conditions.”

Apart from individual company news, economic reports seem to confirm these trends. Here’s a review of headlines since the start of last month:

• June 15: The New York Federal Reserve’s Empire Manufacturing index beat estimates amid strong orders.
• June 20: The National Association of Manufacturers (NAM) said manufacturing confidence was at a 20-year high.
• July 2: The Institute for Supply Management’s manufacturing index beat estimates thanks to strong production
• July 6: Non-farm payrolls for June showed the biggest gain in manufacturing jobs since December 2011.
• July 16: The New York Fed’s Empire Manufacturing index beat estimates again.
• July 17: The Federal Reserve said manufacturing rose +0.8 percent in June after shrinking 1 percent the previous month.

Looking forward at the sector, here are some upcoming events traders may want to know about:

• July 19: Union Pacific (UNP) reports earnings.
• July 20: Honeywell (HON) and General Electric (GE) report earnings.
• July 24: 3M (MMM) and United Technology (UTX) report earnings. MMM was a disaster last quarter but UTX beat estimates and has had activist investors like Dan Loeb and Bill Ackman pushing for a breakup.
• July 25: Boeing (BA) and Ingersoll-Rand (IR) report earnings.
• July 26: Durable-goods orders for June will be announced.
• July 27: Second-quarter gross domestic product will be announced.
• July 30: Caterpillar (CAT) reports earnings.

In conclusion, this isn’t a recommendation and everyone needs to do their own homework. But sentiment has been dismal toward industrials despite a growing chorus of positive news.