Industrial stocks have lost their footing after a strong run, with surging oil prices, higher bond yields, and cooling enthusiasm for the AI buildout weighing on some of the sector's biggest names. The pullback has pushed a closely watched index below a key technical level, even as fresh manufacturing data points to continued economic activity.
Industrials slide off their highs
The S&P 500 Industrials Index has fallen nearly 10% from its mid-August record high, closing below its 200-day moving average every session since Sept. 14. The index last broke below that closely watched trend line during the 2025 trade war.
The selloff comes as oil prices and bond yields surge amid the Iran war. Record diesel prices are adding to operating costs, while FedEx, General Electric, and Stanley Black & Decker have each fallen at least 10%.
Investors are also pulling back from the broader sector. A State Street exchange-traded fund tracking industrials is on pace for its second-largest monthly outflow since April 2025.
The AI buildout trade loses steam
Cooling expectations for AI data center construction have added to the pressure, with GE Vernova and Caterpillar both retreating as investors reconsider the sector's growth prospects.
Deere has bucked the trend, climbing 17% during the pullback as farm commodities rallied. The broader economic picture is also holding up better than industrial stocks suggest.
September's manufacturing PMI reached 57, beating the WSJ consensus forecast of 53.5. Yet industrial shares continued to slip as inflation concerns overshadowed the stronger factory reading.
Suppliers are still delivering
The broader selloff hasn't stopped smaller manufacturers tied to data center cooling and precision components from posting strong results.
Worthington Enterprises grew net sales 13% to $343.9M, beating Wall Street's $331.3M estimate. Adjusted earnings reached $0.82 a share, ahead of the $0.75 forecast.
CEO Joe Hayek credited demand for engineered ASME tanks used in data center cooling systems. NN also raised its full-year outlook, citing AI data centers among its stronger markets.
Smiths Group beat fiscal-year expectations and forecast faster revenue growth ahead. Meanwhile, KKR is preparing to launch Akrapoint Commercial Capital to finance mid-range equipment purchases.
Where fund managers see value
Josh Wein and his co-managers at the Hennessy Cornerstone Growth Fund have roughly a quarter of their portfolio in industrials. The fund has outperformed 98% of peers over five years, according to Morningstar.
Their screening process starts with companies worth more than $1.75B and a price-to-sales ratio no higher than 1.5, compared with the S&P 500's 3.6. Candidates must also show improving year-over-year net income and strong 12-month price momentum.
Wein favors companies with steady demand and substantial backlogs, particularly those supplying the data center buildout.
"There's not a sales cycle involved. It's just kind of slow and steady, big backlog businesses building out these data centers."
Josh Wein, Hennessy Cornerstone Growth Fund
The fund holds Centuri Holdings, which retrofits natural gas pipeline equipment, and Primoris, which builds gas and electricity distribution systems.
MYR Group handles electrical grids and data center wiring, while Tutor Perini adds construction exposure. MYR and Tutor Perini have each returned 29% in 2026.
LPL Financial strategist Adam Turnquist is watching the 1,415 level on the Industrials Index, warning that a break could open further downside toward 1,320. The index closed near 1,440 Wednesday.
"This degree of selling pressure points to washed-out conditions," Turnquist wrote, noting that similar setups have preceded short-term rebounds. Analysts still expect robust earnings growth from the sector.
