Our Outlook for Industrials Stocks

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After enjoying recent torrid growth in emerging economies, a potential slowdown in both developing and developed nations looks to impact the third quarters of many of the industrial companies we cover. Principally, weakening growth in China and India--as evidenced in part by declining auto sales throughout the region in August--could affect firms heavily levered to project and infrastructure spending (such as  ABB (ABB) and  Emerson (EMR)). Similarly, demand for automobiles and construction has weakened in western Europe, where unemployment and housing problems recently encountered in the United States seem to have spread. The quarter's precipitous drop in the Baltic Dry Index (a measure of demand for commodity and project-cargo shipping around the world) to its current 4,700 from an all-time high near 12,000 highlights this global deceleration.