Industrials Lag S&P 500 by Most Since '09 on Global Growth Fears

(Bloomberg) -- Industrials stocks just drowned at the high water mark.

The Industrials Select Sector SPDR Fund tumbled 3.2 percent last week -- underperforming the S&P 500 Index by the most since June 2009 as the broader gauge went little changed.

The exchange traded fund's biggest losses came April 24, when Caterpillar Inc. Chief Financial Officer Brad Halverson threw cold water on the company's robust first-quarter results by saying they constituted the“high water mark for the year.” That spurred concern the growth cycle has peaked, boding ill for industrials in particular. This is a cyclical sector that tends to perform well amid periods of strengthening global growth.

The stock quickly reversed course from up almost 5 percent to end the session more than 6 percent lower, with the intraday swing causing substantial damage to the $12.55 billion exchange-traded fund. Caterpillar is its seventh-largest holding.

On Thursday, the equipment maker's top competitor, Komatsu Ltd., seemingly affirmed the caution on global growth with guidance that underwhelmed analysts. Companies in this ETF tend to be multinationals that generate a high percentage of sales outside of the U.S., and thus the greenback's best week of 2018 also contributed to the woes.

Investors yanked nearly $1 billion from the Industrials ETF last week, the second-largest withdrawal in a decade.

While it's the worst relative performance for this product since the tail end of the Great Recession, XLI has posted larger retreats in three other weeks so far in 2018.

And there's far more than Caterpillar to blame for the wipeout. 3M Co., the fund's third-largest holding, is in the midst of its longest losing streak since 2012. Shares plunged almost 7 percent Tuesday after management trimmed its full-year revenue and profit forecasts, which prompted RBC Capital Markets analyst Deane Dray to flag“warning signs flashing at the operating level.”

To add to its woes, 3M shares are flirting with a death cross, a bearish technical pattern in which the 50-day moving average crosses below the 200-day.

Defense behemoth Lockheed Martin Corp. plummeted 8.5 percent on the week, including its worst one-day drop since 2009. Stronger-than-forecast earnings and a boost its estimates were ignored as investors focused on its feud with the Pentagon over aircraft repairs. Thawing tensions on the Korean peninsula may also pose a headwind for the companies in the space.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Randall Jensen

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