The U.S. economy has performed significantly well in the past five years, with its major stock indexes, including the S&P 500 and Dow Jones Industrial surging 91.6% and 93.8% respectively. Its Gross Domestic Product (GDP) expanded roughly 9.5% in these years, with a year-over-year expansion of 2.3% recorded for 2017.

The future expansion projections issued by the International Monetary Fund (IMF) also appear quite appealing. In its January 2018 report, IMF predicted that the U.S. economy will expand 2.7% in 2018 and 2.5% in 2019. These estimates reflect an improvement of 0.4% for 2018 and 0.6% for 2019 from its earlier growth forecasts. These alterations were primarily induced by the country’s tax policy changes as well as strong global growth momentum.

Our in-house projections, published on the Earnings Trends report dated Mar 7, indicate roughly 20.7% growth in earnings and 7% increase in revenues of S&P 500 companies in 2018. This compares favorably with a growth rate of 7.1% for earnings and 5.9% for revenues recorded in 2017.

Sector in Focus

We believe that investors keen on exposure to industrial companies have reasons to rejoice. Industrial Products, one of the 16 broad Zacks sectors, yielded a solid 35.2% return in the last five years. It currently holds the first position in the Zacks sectors list.

The constituent electrical products industry is at the top of the 265 industries comprising the Zacks sectors while those dealing with construction and mining equipment, office supplies and uniform and related services are in the top 3%. Also, companies dealing with metal & glass containers are in the top 6%. Going by the Zacks methodology, companies in the top half of the 265 industries have greater chances of financial outperformance than the bottom half.

In 2018, the sector’s earnings are projected to grow 23.3% year over year on revenue expansion of 10.1%. Margins are likely to expand 1.12%. The growth for earnings and margins are higher than 15.1% and 0.37% respectively recorded in 2017, while that for revenue is below 2017-figure of 10.6%.

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