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Quarter-End Insights

Early Stages of Slowdown for Industrials

How long is the current worldwide lull likely to persist?

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  • The world is in the early stages of an industrial slowdown, the effects of which the market has been discounting for several weeks.
  • Japan supply-chain problems, which have been highly detrimental to production at Toyota and Honda and have caused intermittent interruptions for other automakers--may abate sooner than expected, which is good news for manufacturing.
  • Construction and agriculture equipment makers are likely to see somewhat slower growth.
  • Valuations that were stretched last quarter are now less so but not yet overly compelling.

The last several weeks have been tough ones for industrial companies, as Mr. Market has been dutifully discounting the worldwide manufacturing slowdown signaled by virtually every indicator of late. Indeed, the  Industrial Select Sector SPDR (XLI) is now about 8% below its April high, compared with a roughly 6.5% decline in the broader market over the same period.

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Eric Landry does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.