Investors have been trained to look in one direction by the financial press for the majority of the past ten years. No matter what was going on in the overall economy, a few Californian tech companies always seemed to have the solution. Then, without any announcement, the leadership changed sometime between the Paris Air Show and a quiet period of summer 2025. Three points ahead of the technology sector, the Industrial Select Sector ETF, or XLI, ended July up 16% year over year. It didn’t seem like many people noticed. Even fewer seemed inclined to think it would endure.
Most of the time it has. Portfolio managers feel that something has actually changed. At precisely the same time that AI infrastructure spending started generating demand for a completely different type of industrial product—turbines, transformers, cooling systems, the kind of equipment that is built in places like Schenectady or Greenville rather than Silicon Valley—aerospace and defense names, which awkwardly fall under the industrials category, began to catch fundamental tailwinds. Boeing resurrected itself. In a single quarter, GE Aerospace’s earnings increased by more than 20%, resulting in a surge of over 60%. It was difficult to ignore the impression that the market had been subtly rebalancing while everyone was preoccupied with chip stocks.
The easiest turn to visualize is the Boeing turn. The plane was parked on the tarmac at Le Bourget like an expensive sculpture, and visitors to the Paris Air Show in June of last year reportedly sat in the shade of a 777 wing during the afternoon heat. Since then, a record commitment from Qatar Airways in May and a British Airways framework linked to a UK trade deal have filled the order book. Boeing is not a clean story as a result of any of this. The stock still bears the scars from the difficult recovery. However, shares have increased by about 70% from April lows and by almost 30% year to date. On paper, that isn’t a recovery. Delivery schedules are starting to show signs of recovery.
Underneath, there is a more general thesis that Charles Schwab’s analysts have been outlining clearly: industrial demand is currently exceptionally broad-based. AI-driven data center expansions, defense spending associated with Middle East conflicts and the Artemis program, and a gradual push toward what the company refers to as “reindustrialization” all contribute to the same pipeline. The One Big Beautiful Bill Act’s fiscal incentives, such as capex write-offs and onshoring credits, encourage businesses to invest capital that they might have otherwise put off. In late summer, Yung-Yu Ma of PNC emphasized that fiscal policy is bolstering an already developing strength.
Industrials are intriguing as a long-term holding because of more than just the rally. It’s the math that lies beneath. Real dividends are paid by many of these businesses. Even when the market for growth stocks declines, many of them continue to make money. Compared to tech, the volatility profile is milder and less interesting, much like compounders. It appears that investors feel that a portfolio that is overly concentrated in six Nasdaq names requires ballast that it did not require five years ago. Almost unintentionally, industrial stocks have turned into that ballast.
Whether the industry continues to lead is still up in the air. With $750 billion in options-implied movement at stake, earnings season in late April brought the customary tug-of-war: strong reports from some, reluctance from others, and a general market wobble on Big Tech results day. From here, industrials can just follow the index. Alternatively, the rotation might become more intense. In any case, the chart from the previous 12 months speaks for itself. The manufacturing, shipping, and maintenance businesses are no longer the dull corner of the market. They may be the most interesting part to watch.