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Steady underlying domestic economic growth, a more docile Federal Reserve and less concern about global trade tensions appear to define the key elements behind 2019's blistering rally across the complex (XLI+14%). While regional economic conditions are expected to remain sound, fears could easily begin to percolate again as investors reconsider conditions in key international geographies, the reality of progress on trade issues, companies' ability to effectively manage through price-cost dynamics and the ticking clock of a mature business cycle. KeyBanc Capital Markets' industrial team continues to emphasize selective exposure to the group via high-quality, North American-centric names that possess clear end market catalysts and optionality around their capital stacks.

Key Takeaways

  • Non-residential construction, machinery, general manufacturing, and oil and gas segments remain favorable.
  • According to the Gardner Business Index (GBI), the metalworking industry’s reading has remained above 50 for 25 consecutive months, and the new orders component has remained above 50 for 27 months.
  • GBI’s industrial production reading reached a cycle high of 109.9 in January, which increased 3.9% year over year.