Estimate Time5 min

Industrials: Ready for takeoff?

Key takeaways

  • The industrial sector is on track for a positive year in 2024.
  • I believe the outlook for 2025 may be bright, thanks to several sector-specific segments and themes, such as the recovery of inventory growth as post-pandemic overstocking diminishes.
  • A variety of factors is fueling a global push to bring supply chains onshore to reduce geopolitical risk, creating potential opportunity for companies that serve domestic construction projects.
  • An aging air fleet has driven up demand for parts and maintenance, creating potential opportunity for companies that supply components and repair older planes.

The industrials sector delivered strong returns on an absolute basis in 2024, slightly lagging the market in what was a good year for stocks.

For 2025, I’m optimistic about the prospects for industrial stocks. In my opinion, there is potential value in a number of specific segments and themes, including reshoring, an aging air fleet, and improving new orders as manufacturing continues to recover from COVID-sparked disruptions.

Fidelity Viewpoints

Sign up for Fidelity Viewpoints weekly email for our latest insights.


2024: A year of strong absolute performance

Industrials had started the year strong, generally keeping up with the S&P through the end of April, but then underperformed in May and June. The sector then bounced back as one of the market’s stronger sectors in July and largely hung on to those relative gains through mid-December. This stop-and-go performance reflected a tension between optimism about a potential soft landing for the US economy and a pipeline of big construction projects and pessimism about weakness in manufacturing surveys and historically high stock valuations.

As of December 9, the industrials sector had gained 21.8% year to date, compared with a 26.9% gain for the S&P 500.
Past performance is no guarantee of future results. Industrials sector performance is represented by the S&P Industrials Select Sector Index. Data as of December 9, 2024. Source: S&P Dow Jones Indices, a division of S&P Global.

2025: Onshoring, aerospace, and housing

In the new year, I’m looking for opportunities that may arise from several big themes. The first of those themes is the return of manufacturing to the US from other countries. A variety of factors are producing an unprecedented push to reinvest in domestic infrastructure, to bring supply chains onshore to reduce geopolitical risk, and to increase investments in electrification and the development of artificial intelligence.

The COVID-19-related shutdowns of trade and commerce created severe disruptions for companies in many industries and have caused many firms to reconsider the wisdom of global supply chains. Increasing geopolitical tensions are also increasing the appeal of moving operations back to the US. In addition, government policies including the Inflation Reduction Act, the Infrastructure Investment and Jobs Act, and the CHIPS Act are encouraging the return of domestic production.

Fund top holdings1

Top-10 holdings of the Fidelity® Select Industrials Portfolio () as of October 31, 2024:

  • 5.94% – GE Aerospace. ()
  • 4.87% – GE Vernova Inc. ()
  • 4.62% – Howmet Aerospace Inc. ()
  • 4.35% – Parker Hannifin Corp. ()
  • 4.28% – Ingersoll Rand Inc. ()
  • 3.98% – Trane Technologies PLC ()
  • 3.59% – Union Pacific Corp. ()
  • 3.59% – Boeing Co. ()
  • 3.46% – TransDigm Group Inc. ()
  • 3.38% – Eaton Corp. PLC ()

(See the most recent fund information.)

This reset of priorities has already produced a surge in announcements in North America of projects with budgets of more than $1 billion. The value of projects announced since 2020 is roughly $1.9 trillion, and only about one-quarter of these have entered the construction phase, which implies that the majority of this work may still lie ahead. This could bode well for a wide-ranging group of industrial companies, including equipment rental specialist United Rentals (),2 Trane Technologies (), a maker of heating, ventilation, and air conditioning products and services, and Eaton Corporation (), a provider of electrical equipment.

A second theme I’m watching is commercial aerospace. This market has experienced supply and demand turbulence in recent years. The grounding of the Boeing 737 MAX planes in 2019 reduced the supply of planes available to airlines. Next, COVID-19 hit and the aerospace industry cut production and laid off experienced workforces. Many of those experienced workers did not return when companies began to increase production. The resulting quality and productivity issues further worsened the shortage of new planes as travel recovered to pre-COVID levels. As a result, airlines have had to keep older planes in service for longer, and as their fleets grow older, spending on parts and maintenance has increased. This could benefit companies such as GE Aerospace (), which makes and repairs aircraft engines, TransDigm Group (), an aftermarket aircraft parts supplier, and FTAI Aviation (),3 an engine leasing and aftermarket repair business.

I have also seen potential opportunity in a variety of industrial companies that have been impacted by post-COVID supply-and-demand imbalances. After the initial COVID-induced supply shortages, many companies then overinvested in inventories—causing glut conditions—and subsequently cut new orders with industrial companies. This challenging environment has been reflected in a roughly 2-year stretch of weak readings for surveys that measure the health of the US manufacturing sector. However, given the length of the downturn, which has given customers time to slowly shrink their inventories, and given the possibility of further Federal Reserve interest-rate cuts, I think it's possible that the operating environment could improve over the next couple of years. Stocks that have illustrated this theme include multi-industrial companies, such as Ingersoll Rand (), ITT (),4 and Parker Hannifin (), as well as transportation companies that could see increased business from transporting new inventory, including Knight-Swift Transportation Holdings (),5 Old Dominion Freight Line (),6 and XPO ().7

Finally, interest-rate cuts could help stimulate the housing market if mortgage rates eventually also fall. This could benefit building product companies, particularly those with exposure to the repair and remodeling market. Fortune Brands Innovations (),8 AZEK (),9 and Simpson Manufacturing ()10 are examples of recent portfolio holdings that have exemplified this thesis.

A policy tailwind?

One other theme I’ve been watching is how policy changes from the incoming administration and Congress could impact the sector. In many ways, I believe upcoming shifts could be broadly favorable for this sector. Potential deregulation could increase confidence for company managements, their customers, and investors alike. Many companies have said recently that their customers are hesitant to make capital investments and place orders. The election outcome may inspire more confidence for these businesses to move forward with their investments.

Policy shifts from the incoming administration could also provide a push for further reshoring and reindustrialization, which may be especially positive for domestic producers. This work could require an increased amount of construction equipment and materials to build this capacity, as well as labor to complete these projects.

A diverse sector may mean more opportunities

The companies in the industrials sector differ widely in the markets they serve, their business models, and the cycles of their businesses. This diversity tends to create a lot of opportunity. Combine that diversity with a resilient US economy and Fidelity’s comprehensive industry and company research, and I believe 2025 could offer a very favorable environment for stock picking.

David Wagner, Fidelity Sector Portfolio Manager
David Wagner is a sector leader and portfolio manager in the Equity division at Fidelity Investments. In this role, Mr. Wagner manages the Fidelity Select Industrials Portfolio. Additionally, he is responsible for analyzing and rating stocks and supporting portfolio managers. His research coverage is primarily focused on multi-industrial companies in the industrials sector. Previously, he covered global chemical companies within the materials sector and co-managed the Fidelity Agricultural Productivity Fund and Fidelity Select Chemical Portfolio. Prior to joining Fidelity in 2014, Mr. Wagner was an analyst at PAR Capital Management and a consultant at Putnam Associates. He has been in the financial industry since 2013. Mr. Wagner earned his bachelor of arts degree in economics from Yale University and his master of business administration degree from the Wharton School of the University of Pennsylvania.

Put your investing ideas to work

Get industry-leading research, guidance, tools, and pricing.

More to explore

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully. 1. Any holdings, asset allocation, diversification breakdowns or other composition data shown are as of the date indicated and are subject to change at any time. They may not be representative of the fund's current or future investments. The Top Ten holdings do not include money market instruments or futures contracts, if any. Depository receipts are normally combined with the underlying security. Some breakdowns may be intentionally limited to a particular asset class or other subset of the fund's entire portfolio, particularly in multi-asset class funds where the attributes of the equity and fixed income portions are different. Under the asset allocation section, international (or foreign) assets may be reported differently depending on how an investment option reports its holdings. Some do not report international (or foreign) holdings here, but instead report them in a "Regional Diversification" section. Some report them in this section in addition to the equity, bond and other allocation shown. Others report international (or foreign) holding as a subset of the equity and bond allocations shown. If the allocation without the foreign component equals (or rounds to) 100%, then international (or foreign) is a subset of the equity and bond percentage shown. 2. Fidelity® Select Industrials Portfolio () held a 2.552% position in this stock as of October 31, 2024. 3. Fidelity® Select Industrials Portfolio () held a 0.868% position in this stock as of October 31, 2024. 4. Fidelity® Select Industrials Portfolio () held a 2.893% position in this stock as of October 31, 2024. 5. Fidelity® Select Industrials Portfolio () held a 1.753% position in this stock as of October 31, 2024. 6. Fidelity® Select Industrials Portfolio () held a 1.795% position in this stock as of October 31, 2024. 7. Fidelity® Select Industrials Portfolio () held a 1.544% position in this stock as of October 31, 2024. 8. Fidelity® Select Industrials Portfolio () held a 2.139% position in this stock as of October 31, 2024. 9. Fidelity® Select Industrials Portfolio () held a 1.490% position in this stock as of October 31, 2024. 10. Fidelity® Select Industrials Portfolio () held a 1.079% position in this stock as of October 31, 2024.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

References to specific securities or investment themes are for illustrative purposes only and should not be construed as recommendations or investment advice. This information must not be relied upon in making any investment decision. Fidelity cannot be held responsible for any type of loss incurred by applying any of the information presented. These views must not be relied upon as an indication of trading intent of any Fidelity fund or Fidelity advisor. Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk. This piece may contain assumptions that are "forward-looking statements," which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

Past performance is no guarantee of future results.

Investing involves risk, including risk of loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

Industrials industries can be significantly affected by general economic trends, changes in consumer sentiment and spending, commodity prices, legislation, government regulation and spending, import controls, and worldwide competition, and can be subject to liability for environmental damage, depletion of resources, and mandated expenditures for safety and pollution control.

The trademarks and service marks appearing herein are the property of their respective owners.

The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance. The S&P Industrials Select Sector index comprises those companies included in the S&P 500 that are classified as members of the industrials sector, with capping applied to ensure diversification among companies within the index.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

1181845.1.0