It’s make-or-break time for the Industrials sector.

All year, we’ve applauded the relative strength for the group. They were the first to break out above the January 2022 highs, and even now, the Industrials are hanging above support.

There’s only one sector that’s still above last year’s peak.

The Industrials were out of favor for the first 5 months of the year, but things have been perking up since the end of May. They’ve underperformed only the Energy sector since then.

Only one S&P 500 sector has reached new all-time highs this year, and it’s not home to a single ‘big tech’ stock.

The Industrials surged 11% in June, driven by a broad rally within its diverse membership.

The breakout in Industrials came quickly, but it didn’t come as a surprise. We’ve been highlighting the underlying strength within the sector all year with this chart of the equally weighted sector vs. the equally weighted S&P 500. Strip out the influence of the mega caps, and the Industrials have been outperforming all year.

While prepping today’s Industrial sector note, the biggest question was not which charts to include, but rather, which charts can we leave out?

All year we’ve been talking about the underlying strength within the sector, but that underlying strength hasn’t really mattered. The only thing that’s mattered is large cap growth – investing anywhere else has led to rather sub-par gains.

Still, we’ve kept our overweight rating on Industrials because we’ve viewed them as the best positioned of all the value-tilted sectors, and we’ve believed that a rotation back from growth into these other areas of the market was likely.

In a world that’s been dominated by large cap growth as of late, the Industrials are struggling to keep up.

The relative pullback in Industrials has continued in April.

The Industrials have lagged this year along with everything else that isn’t tech-related. On a relative basis, the sector is still in an uptrend, but it’s fallen below support from the 2021 highs. That puts the outlook in question.

The Industrials sector continues to show relative strength.

The Industrials sector weakened on a relative basis since our last update, but unlike the weakness we’ve described in Consumer Staples and Health Care, Industrials have NOT fallen below support.

We lowered our overweight rating on Industrials after they reached our relative target in November. They’ve since absorbed that level of resistance and resumed their march higher. We’re wary given the lack of momentum confirmation we’ve seen so far but, this is not a group we want to be approaching from the short side.