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Industrials top-performing S&P 500 sector this year

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Defense stocks boost group; RTX, Lockheed among Q2 reports

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coming week

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One-fifth of S&P 500 to report, including Alphabet, Tesla

By Lewis Krauskopf

NEW YORK, July 18 (Reuters) - The industrial sector has

led the way for U.S. equities during a topsy-turvy year on Wall

Street, but its strength will be tested as earnings season heats

up.

S&P 500 industrials, which include aerospace

companies, electrical equipment and machinery makers,

transportation firms and building products companies, have

gained 15% so far in 2025. That's the best year-to-date

performance of the S&P 500's 11 sectors and more than double the

gain of the overall index.

Momentum for the industrials sector and the broader market

will be in focus with a heavy upcoming week of second-quarter

earnings, which includes reports from more than one-fifth of the

S&P 500, led by Alphabet and Tesla, the first

of the "Magnificent Seven" megacap tech and growth companies to

report.

The S&P 500 has surged 26% since April, as investors shook

off fears about a recession which had stemmed from President

Donald Trump's "Liberation Day" tariff announcement.

This earnings season "seems to be especially important

because of the rebound that the market has had," said Chuck

Carlson, chief executive officer at Horizon Investment Services.

"I would think that that has built in a fair amount of optimism

in terms of earnings."

A number of industrials will be in the earnings spotlight as

well.

Aerospace and defense stocks have boosted the sector's

performance this year, driven by heightened geopolitical

tensions in the Middle East and Ukraine and fresh spending

commitments by Germany and other nations.

The S&P 500 aerospace and defense industry group

has surged 30% this year. Defense companies to report in the

coming week include RTX, Lockheed Martin ( LMT ) and

General Dynamics ( GD ).

GE Aerospace, whose shares have soared about 55% this

year, raised its 2025 profit forecast on Thursday.

Another industrial company spun off from legacy General

Electric ( GE ) last year, GE Vernova ( GEV ), has seen its shares

skyrocket over 70% this year, making it the best-performing

industrial sector stock. The power equipment maker's results are

due Wednesday.

The push for reshoring infrastructure and expansion of

artificial intelligence, which has lifted demand for cooling

systems and factory automation, are two themes that have

supported a number of stocks in the industry, including Eaton

and Rockwell Automation ( ROK ), said Robert Pavlik,

senior portfolio manager at Dakota Wealth Management.

Another stock that has supported the industrial sector this

year: Ride-hailing giant Uber ( UBER ), whose shares are up

roughly 50%.

"Unlike many non-Tech groups, there are a lot of solid

stories here that don't rely on macro forces to deliver solid

forward returns," Nicholas Colas, co-founder of DataTrek

Research, said in a note on Wednesday. Large cap industrials

still look attractive despite the group's recent run, Colas

said.

Indeed, while industrials have been viewed historically as

closely tied to the fortunes of the economy, declines for a

number of growth-cycle-linked stocks have weighed on the

sector's performance.

Shares of package delivery firms UPS and FedEx ( FDX )

have posted sharp declines, while airlines including

United Airlines and trucking companies such as JB Hunt

Transport Services are also negative for the year.

"There are economically sensitive (areas) within industrials

that are not doing well," said Walter Todd, chief investment

officer at Greenwood Capital.

Other industrial companies slated to report in the coming

week are Honeywell ( HON ), Union Pacific ( UNP ) and United

Rentals ( URI ).

Beyond earnings, Wall Street will continue to focus on any

developments on trade ahead of August 1, when higher U.S.

tariffs on numerous trading partners are set to take effect.

Investors will also be sensitive to news on the Federal

Reserve, with Fed Chair Jerome Powell facing fresh pressure from

Trump to resign as the president presses the central bank to

lower interest rates. The Fed's next monetary policy meeting is

July 29-30.

The S&P 500 has climbed about 7% so far this year.

The market has shown resilience despite "an incredible

amount of uncertainty," said Eric Kuby, chief investment officer

at North Star Investment Management Corp.

"We continue to be surprised at how well stocks are trading

given a lot of what would seem to be significant headwinds,"

Kuby said.