These days, almost every sector under the sun is intimately tied to economic data points, both foreign and domestic, but some sectors are still more tied to certain data points than others. Such is life for the industrials group when it comes to manufacturing and factory orders data.
Unfortunately, the barrage of weak economic data continued on Monday, testing the mettle of the already beleaguered industrials group. The day's lone data was the following and it was not pretty: The Commerce Department said factory orders fell 0.6% in April. Economists expected an April increase of 0.2%. Excluding transportation, new orders fell 1.1%. Making matters worse was the fact that the March number was revised lower, indicating that the U.S. economic recovery is either more fragile than previously believed, losing steam or both.
The Industrial Select Sector SPDR (NYSE: XLI), the largest industrials ETF, fell more than 1% on volume that was well above the daily average following the factory orders data. XLI's Monday decline added to the ETF's recent woes. The fund has lost over 9% in the past month, meaning it has performed far worse than the Dow Jones Industrial Average. Monday's closing price of $33.36 is the ETF's lowest since early this year, but what's more important is that XLI has closed below its 200-day moving average twice in the past two days.
It's easy to spot what offenders are ailing XLI and the industrial sector at large. Dow component General Electric (NYSE: GE), XLI's largest holding at 11.5% of the fund's weight, dropped 2.1% Monday, that's more than twice XLI's slide. Fellow Dow component Caterpillar (NYSE: CAT), the world's largest maker of construction and mining equipment, plunged 2.6% on volume that was well above the daily average. Caterpillar is XLI's fourth largest holding with an allocation of almost 4.7%.
UPS (NYSE: UPS) and United Technologies (NYSE: UTX), another Dow stock, were less bad than XLI. Then again, UPS has lost 6% in the past month and United Technologies has plunged 10% over the same time, performances that underscore the industrial sector's broader weakness.
The catch-22 investors now face is recognizing that while many of XLI's constituents are among the most venerable names in American business and a worthy of their blue chip status, when markets fall, the color of the chips doesn't matter. Translation: General Electric, Caterpillar, etc. may be the types of stocks your grandfather owns, but that's not a validation of them given the current state of affairs in the financial markets. Simply put, those interested in industrial stocks can wait for better pricing.