How the Industries Sector fared During the Recession
With the slowdown in the global economy and increasing unemployment, many investors are turning to industries that are not considered “industrial” such as the Materials sector which is one of the few to benefit from the economic downturn. Materials stocks have gained a reputation for being strong performers despite the down turn in the stock market. There are a variety of reasons for this including the fact that Materials are a cyclical industry which means that they tend to bounce back after major market dips. Other than oil and gas, there is little other industry which can be considered as cyclical.
Banking is another sector which is not a “real” industrials sector but has been growing at a rapid pace due to the loosening of lending criteria by US banks. Banking earnings are influenced by the health of the US economy and interest rates. Banking products such as commercial paper, mortgage-backed securities (mortgage-backed securities are financial instruments based on mortgages issued by financial institutions), savings and loans, and investment banking comprise the majority of banking revenues. While banking earnings will decrease when the US economy begins to recover (significantly), banking shares are expected to increase when the US economy heals.
Capital Goods consist of physical manufacturing, transportation, and services such as raw materials. The large number of industrial goods produced in the United States, combined with the fact that most of these products are produced offshore has led to an imbalance between domestic demand and supply. While the US has the highest level of manufacturing output in the world, it has a comparatively high amount of non-manufacturing activity as well. In order to counteract the effects of increased non-manufacturing, companies invest their profits in increasing the amount of capital goods they produce. Capital Goods sector will continue to perform strongly as economic recovery improves and the US economy begins to return to pre-recession levels.