Industrials have posted their best start to the year in a quarter century. Here's where the sector can go next, according to Trivariate Research. Industrials have turned out to be an underappreciated star of the 2026 stock market. The State Street Industrial Select Sector SPDR ETF (XLI) has rallied more than 5% this year, one of six S & P 500 sectors that have gained year to date. Energy is the leading outperformer, up 37%. Fourteen of the top 20 stocks by market cap in the group are higher this year, the firm pointed out. Eight have even notched double-digit gains in the period, including GE Vernova (up 37%), Caterpillar (up 25%), and Lockheed Martin (up 26%). This comes even as the S & P 500 has buckled under the weight of geopolitical risks, as well as ongoing concerns in artificial intelligence and private credit. The market cap weighted index is down nearly 4% this year. But further gains may be harder to come by for the group, Trivariate found. Industrials are expensive after this year's rally, trading at a forward price-to-earnings ratio of roughly 24. They may have now priced in recent improvements in the Purchasing Managers Index (PMIs), a leading indicator showing economic growth that boosted cyclical sectors. What's more, industrials are the most diverse sector of the market, with 15 sub-industries of at least 10 stocks each, making any broad call on the group challenging. "It is imperative for the sector to post upwards earnings revisions for the recent outperformance to continue," wrote the firm's founder Adam Parker. "But that will be challenging." Trivariate Research searched for stocks that are in the top quartile of 12-quarter trailing earnings growth, and a one-month change in forward earnings expectations. Here are some of the names the firm is long on. Howmet Aerospace is one of the names that surfaced on the firm's list. The aerospace and defense stock is already up more than 15% this year. Yet the majority of analysts rate it a buy, according to CNBC's analyst consensus tool. Quanta Services is another name that is up by more than 34% this year but the firm continues to be long. The infrastructure services provider for electric power is one traders expect will continue to benefit from the energy transition for AI.
