Old-economy cyclical industries continue to come under pressure as higher oil prices and interest rates weigh disproportionately on these economically sensitive groups. With the Fed raising rates for the first time since 2023, that pressure intensified this week. Industrials, in particular, caught my attention. The percentage of S&P 500 Industrials stocks outperforming the S&P 500 over the past 21 sessions—roughly one month—fell to the lowest level in the data’s history.
The near-term outlook for Industrials remains challenging, particularly if the Fed continues to raise rates. However, markets rarely move in a straight line, and extreme deterioration can create the conditions for sharp countertrend rallies.
As the chart below illustrates, similarly depressed readings in the percentage of Industrials stocks outperforming the broad market have historically been followed by some very strong one-day rebounds. These bounces can prove temporary rather than signal the start of a sustained trend, but they are important to recognize. On an annualized basis, these one-day rebounds have an average return of 53%.
Keep an eye on oil. It could be the key variable determining whether Industrials experience a meaningful bout of mean reversion.
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