A bullish expansion in 1-year highs for Industrial sector stocks

Key points:

• The percentage of S&P 500 Industrial sector stocks closing at a 1-year high exceeded 23%
• Industrial sector new highs expanded to the highest level in more than a year
• Following similar expansions in new highs, both industrials and the S&P 500 displayed solid results 

More and more large-cap Industrial stocks are breaking out to a 1-year high

The prevailing concern for most market participants has been the lack of broad-based participation from sectors beyond a handful of growth-oriented groups. As we highlighted in several notes, the participation problem eventually resolves itself with a catch-up trade that improves the internal condition of the market.

Nowhere is the improvement in breadth more evident than in large-cap Industrial stocks. On Friday, the percentage of S&P 500 Industrial sector stocks closing at a 1-year high expanded above 23% to the highest level in a year. And the overall level exceeded all other sectors, including Technology.

Typically, when a cyclical sector such as industrials gets in gear like now, it's a bullish development for the overall market.

As of last Friday's closing bell, market breadth indicators for the S&P 500 Industrial sector looked the best of any group.

Similar expansions in new highs led to a positive outlook for the industrial sector

When the percentage of S&P 500 Industrial sector stocks closing at a 1-year high exceeds 23% and records the highest level achieved in the past year, the sector tends to rise over the subsequent year. The Dotcom bust was the lone period where the expansion in new highs yielded an unfavorable outlook for the subsequent year.

Broad market performance

The S&P 500 shows a solid tendency to rally when the percentage of 1-year highs for S&P 500 Industrial sector stocks expand like now. Similar to the industrial sector outlook, the lone hiccup a year later occurred during the Dotcom bust.

What the research tells us...

Market breadth indicators for sectors outside of growth-oriented groups have significantly improved over the past few weeks. The industrial sector, in particular, has witnessed a remarkable surge, with 1-year highs soaring above 23% and reaching their highest point in over a year. This expansion in new highs suggests a positive outlook for both the industrial sector and the broad market. While anything can happen in the near term, the big-picture backdrop continues to favor the bulls.