Industrials Sector (XLI)
PMI-gated cyclical; transports and machinery concentrated.
Industrial Select Sector SPDR (XLI) · Profile updated 2026-05-03
Macro Context
Industrials is the most PMI-sensitive sector in US equities. XLI's top holdings (CAT, DE, UNP, UPS, HON, BA, LMT) cover heavy equipment, rail, air freight, and aerospace-defense. Each responds to a different macro signal: CAT and DE track commodity capex and agricultural equipment demand; UNP, NSC, and CSX track freight volumes; UPS and FDX track e-commerce activity; BA and LMT respond to defense-budget cycles and commercial-aircraft demand.
The ISM Manufacturing PMI is the single cleanest read. Sector performance correlates at roughly 0.6 with rolling PMI changes, and XLI typically bottoms 2-3 months before the PMI trough. The 2022 industrial recession (PMI below 50 for 14 consecutive months) kept XLI range-bound; the 2024 PMI recovery above 50 drove XLI through prior highs.
Defense exposure via LMT, NOC, RTX, and GD is relatively uncorrelated with the broader cycle; it tracks geopolitics and defense authorization acts. Aerospace (BA) has been an idiosyncratic drag since 2020 and continues to weigh on sector price action.
Convex tracks XLI alongside the ISM Manufacturing PMI, Cass Freight Index, and transportation ETFs (IYT). Industrial earnings-revision breadth typically peaks when PMI crosses 55 and troughs when it drops below 46.
Primary Drivers
- ›ISM Manufacturing PMI
- ›Cass Freight Index
- ›Defense authorization and geopolitical budgeting
- ›Commercial aerospace (BA recovery trajectory)
- ›Commodity and agricultural capex cycle
Convex Watch Signals
- ›XLI/SPY ratio trend vs ISM PMI
- ›Transportation ETF (IYT) relative strength
- ›Dow Transports divergence from Dow Industrials
- ›Global PMI breadth
- ›Defense bill progression in Congress
Regime Behavior
- Goldilocks
- Modest tailwind. PMI above 50 supports multiples.
- Reflation
- Leads. PMI acceleration plus infrastructure spending plus commodity capex.
- Stagflation
- Mixed. Cost pressure vs pricing power.
- Deflation
- Lags. PMI contraction plus defensive rotation.
Live Related Indicators
Related Glossary
Frequently Asked Questions
What drives the Industrials sector?+
Industrials (XLI) is primarily driven by ism manufacturing pmi, cass freight index, defense authorization and geopolitical budgeting. These are the factors that move the ETF on both a cyclical and structural basis and where Convex focuses sector-specific data ingestion.
Which macro regime favors Industrials?+
Industrials typically leads in a Reflation regime. Detailed regime behavior: Goldilocks, Modest tailwind. PMI above 50 supports multiples. Reflation, Leads. PMI acceleration plus infrastructure spending plus commodity capex. Stagflation, Mixed. Cost pressure vs pricing power. Deflation, Lags. PMI contraction plus defensive rotation.
Which signals should I watch for Industrials?+
Convex tracks the following for Industrials: XLI/SPY ratio trend vs ISM PMI; Transportation ETF (IYT) relative strength; Dow Transports divergence from Dow Industrials; Global PMI breadth; Defense bill progression in Congress. These surface the earliest evidence of sector rotation or regime change.
What is the XLI ETF?+
Industrial Select Sector SPDR (XLI) provides equity exposure to the US industrials sector. Industrials currently represents roughly 8% of the S&P 500. The ETF is the primary vehicle Convex uses to track sector performance and relative strength versus the broader index.
How does Industrials compare to the S&P 500?+
Over the past 90 days, XLI has outperformed the S&P 500 by 0.40 percentage points. Convex tracks the XLI/SPY ratio continuously as a leadership barometer; the current reading is discussed in the regime notes.
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Related Sectors
Sector profile compiled from Convex macro research and live ETF data. Weightings approximate current S&P 500 composition and shift with market capitalization. For informational purposes only, not financial advice.