Industrials' gains put to test as earnings ramp up

NEW YORK: Investors betting on industrial stocks this year have been rewarded, with the group among the best-performing sectors so far, but that strength will be tested in the coming weeks as companies report results.

While industrial stocks and the rest of the market have risen on hopes that a China trade deal is near, executives have warned about the conflict's impact, with the industrials space seen as one of the most sensitive. "Some of them have seen valuations or estimates come down substantially on those risks." Because of that, industrial companies could have further to gain if there is a trade deal or any reversal to existing tariffs, she said. The bank has an overweight rating on industrials this year.

At the same time, Southwest Airlines Co has cut its financial outlook for the year after being forced to pull its new fleet of 34 Boeing 737 MAX planes out of service, and United Airlines has said it would see an adverse effect on its operations if the jets remained grounded heading into the peak summer travel season.

Those bullish on the industrials sector also argue that its valuation remains attractive despite this year's strong gains.

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