Industrials Are Quietly Outpacing the Market: 3 Stocks to Watch

Core Viewpoint - The industrials sector has shown strong performance in 2025, outperforming the benchmark, driven by factors such as reshoring, technological advancements, and market rotation towards cyclical industries [1][2][4]. Group 1: Sector Performance - The industrials sector, represented by the Industrial Select Sector SPDR ETF (XLI), has gained 5.2% in 2025, compared to the benchmark's 4.3% [1]. - The sector's current technical setup indicates potential for further upside, as it has consolidated for nearly a month and is nearing a breakout [1]. - Strong inflows into the sector and a bullish market setup contribute to its outperformance [2]. Group 2: Key Drivers - Reshoring trends are a significant driver, with manufacturing returning to domestic markets due to geopolitical stability concerns and favorable government policies [2]. - Technological advancements in automation, electric vehicles, and renewable energy infrastructure are increasing demand for industrial products [3]. - Government investments in infrastructure and defense spending are providing strong support for the sector [3]. Group 3: Notable Companies - Axon Enterprise has surged 19.4% YTD, significantly outperforming both the sector and the broader market, with a strong upcoming earnings report expected [6][8]. - General Electric (GE) has gained nearly 26% YTD and 80% over the past year, driven by its leadership in aviation systems and impressive earnings performance [9][10]. - RTX has gained nearly 7% YTD, outpacing the industrial sector and broader market, with solid earnings performance and potential for long-term growth [11][12]. Group 4: Market Dynamics - There has been a market rotation from high-growth technology stocks to cyclical industries like industrials, enhancing the attractiveness of the XLI ETF [4]. - The XLI ETF features a low expense ratio of 0.09% and a dividend yield of 1.16%, which further attract capital inflows [4]. - Despite sensitivity to economic cycles and global trade dynamics, the sector is supported by technological innovation and policy support [5].