Industrials stocks are closing out 2025 with something they haven’t consistently enjoyed in recent years: a credible claim to market leadership that isn’t purely “late-cycle” or “reopening” nostalgia. Heading into 2026, investors are increasingly framing the industrials sector as a bridge between two powerful forces shaping the next market phase—an AI-driven capital spending cycle and a policy-and-infrastructure push that’s reshaping supply chains, defense priorities, and freight networks.
The timing matters. As of Saturday, December 20, 2025, the most recent U.S. trading session was Friday’s close, when major indexes finished the week higher and remained solidly positive for the year—helping keep risk appetite alive as investors rotate beyond the same small set of mega-cap winners. [1]
For industrials, that “breadth” story is showing up in real-world headlines, too—from a proposed $85 billion coast-to-coast rail merger to Boeing’s push to extend sales of a workhorse freighter model, and the freight and parcel giants signaling what demand may look like once the calendar flips to 2026. [2]
Below is a detailed, news-driven look at what’s moving industrials stocks now, what major forecasters expect next, and the catalysts likely to define the sector’s 2026 setup.
Why industrials stocks are back in the spotlight
1) Market leadership is broadening—and industrials are part of the “second act”
One of the clearest late-2025 market signals is that gains have broadened beyond a narrow set of technology names. That doesn’t mean tech is irrelevant—AI remains a central driver of sentiment and earnings expectations—but it does mean investors are more willing to fund “real economy” beneficiaries again, including industrials. [3]
2) The AI capex boom isn’t just a tech story—industrials supply the picks and shovels
Multiple 2026 outlooks increasingly point to industrials as a practical beneficiary of AI spending—because data centers and AI infrastructure require power equipment, cooling systems, construction services, logistics capacity, and highly engineered components. CBS News explicitly flags industrials as a sector expected to benefit by supplying equipment needed for data centers. [4]
3) Strategists are upgrading the sector into 2026
Charles Schwab’s sector framework upgraded Industrials to “Outperform” in early December, highlighting solid fundamentals and the potential for industrials to benefit from AI adoption. [5]
That kind of upgrade matters for flows. Many investors express sector views through ETFs, and industrials ETFs have already delivered strong 2025 results—setting a higher bar for 2026, but also keeping the group on screens.
Industrials ETF snapshot: how the sector looks through XLI
For a “whole sector” view, many investors track the Industrial Select Sector SPDR ETF (XLI). As of Dec. 16, 2025, Nasdaq reports XLI was up about 20.26% year-to-date and up about 15.79% over the past 12 months, with a 52-week range of $116.42 to $157.73. Nasdaq also describes XLI as a medium-risk option with roughly 82 holdings, and points to alternatives like Vanguard Industrials ETF (VIS) and First Trust RBA American Industrial Renaissance ETF (AIRR). [6]
That performance is strong—but it also raises the key question for Dec. 20, 2025: what has to go right for industrials to repeat (or defend) those gains in 2026? The answer begins with the headlines.
The biggest industrials headlines driving the tape this week
1) Railroads: Union Pacific and Norfolk Southern launch the regulatory clock on a potential mega-merger
One of the most consequential industrials stories late this week is in freight rail:
- Union Pacific and Norfolk Southern filed a nearly 7,000-page merger application with the U.S. Surface Transportation Board (STB) to create what Reuters calls the first coast-to-coast U.S. freight railroad—a deal valued around $85 billion. [7]
- The filing triggers a 30-day period for the regulator to ask for more information or propose initial remedies, while stakeholders (shippers, labor, consumer advocates, local officials, rivals) prepare responses. [8]
- Competitors argue the deal could reduce shipper choices and increase rates; the transaction will be reviewed under the STB’s stricter merger framework adopted in 2001, which requires railroads to show a merger will enhance competition and deliver public-interest benefits. [9]
Why it matters for industrials stocks: rail is a core cyclicals barometer. A merger of this scale is a direct bet on network efficiency and pricing power—while also creating substantial regulatory and political uncertainty. Either way, it forces investors to reprice “competition risk” across the rail group and related logistics names.
2) Aerospace: Boeing seeks an emissions waiver to extend 777F freighter sales
Boeing is at the center of another industrials-relevant narrative: the intersection of production backlogs, certification timelines, and tightening regulation.
Reuters reports Boeing asked the FAA for a waiver to sell 35 additional 777F freighters, citing strong demand and delays in certifying the next-generation 777-8 Freighter. The emissions rules at issue take effect in 2028. [10]
Key details from Reuters:
- Boeing said it’s seeking approval by May 1. [11]
- Boeing has said the first 777-8F would be delivered roughly two years after the first 777-9, which is currently targeted for 2027. [12]
- Boeing argues large widebody freighters are crucial to exports, and said each exported 777F contributes $440 million at catalog value to the trade balance; without the exemption, Boeing said more than $15 billion in U.S. export value could be lost. [13]
Why it matters for industrials stocks: aerospace & defense remains one of the most influential industrials subsectors. The market often rewards clearer delivery ramps and cash-flow inflections—and penalizes certification delays and regulatory friction.
3) Boeing’s cash-flow narrative: higher deliveries and a 2026 inflection
Earlier this month, Reuters also reported Boeing’s CFO told a UBS conference the company expects positive cash flow in 2026, helped by higher deliveries of commercial jets—after an expected negative $2 billion cash outflow this year. [14]
For industrials investors, this is a familiar playbook: deliveries → cash flow → balance sheet → valuation multiple. Boeing’s path remains complicated, but the direction of guidance is a meaningful sentiment lever for the entire aerospace supply chain.
4) Logistics and transport: FedEx raises outlook—but freight remains a pressure point
FedEx delivered a cluster of signals industrials investors care about:
From FedEx’s official investor release (Dec. 18, 2025):
- FedEx reported second-quarter results (quarter ended Nov. 30) and said it raised full-year fiscal 2026 revenue and earnings outlook. [15]
- FedEx said the planned spin-off of FedEx Freight remains on track for June 1, 2026, with the new company expected to trade under FDXF, and an investor day planned for April 8, 2026. [16]
From Reuters (Dec. 18, 2025):
- FedEx said it was planning for $175 million in unexpected peak-season costs to source replacement lift after MD-11 cargo planes were grounded following a deadly crash tied to a UPS flight in November. Reuters notes FedEx had 28 MD-11s in operation when the FAA grounded them. [17]
- FedEx said it expects the MD-11 fleet will return to service in its fiscal fourth quarter ending May 31, 2026. [18]
From FreightWaves (Freight unit pressure):
FreightWaves reports FedEx Freight’s revenue fell 1.7% year over year to $2.14 billion in the fiscal second quarter, with declines in shipments and tonnage. FreightWaves also notes the company now expects FedEx Freight revenue to decline slightly year over year for the fiscal year ending May 31 (versus prior expectations for low-single-digit growth), with lower volumes continuing to weigh on margins. [19]
Why it matters for industrials stocks: transport names are a real-time read on industrial activity. If business-to-business shipments and manufacturing demand soften, it can ripple through machinery, components, and broader industrial services—especially if pricing power fades.
5) Defense: analysts are explicitly shifting focus toward drones, missiles, and newer players
Defense is a major pillar inside industrials. Barron’s reports J.P. Morgan downgraded Lockheed Martin from Buy to Hold, while pointing to shifting defense priorities toward drones and missile systems; the piece also highlights bullish calls on drone- and space-exposed names like AeroVironment, Karman, and Kratos. [20]
Why it matters: even within industrials, leadership can rotate sharply. “Defense” isn’t one trade—investors are actively segmenting legacy primes versus faster-growth autonomous and space-adjacent suppliers.
2026 forecasts: what major outlooks imply for industrials stocks
A capex-driven market thesis is forming
Bank of America Global Research’s December outlook frames 2026 as potentially more capex-driven. In its press release, BofA highlights expectations of 14% EPS growth but only 4–5% S&P 500 price appreciation (with a year-end target of 7,100) while “capex surges,” explicitly watching for a shift from a consumption-driven bull market to a capex-driven one. [21]
Industrial stocks are a primary expression of that thesis—because capex cycles flow straight into orders for equipment, construction, automation, and transport capacity.
BofA’s outlook also includes macro assumptions industrials investors track closely, including expectations that the Fed cuts rates by 25 bps at the December 2025 meeting and twice in 2026 (June and July). [22]
Wall Street index targets reinforce the “AI build-out” backdrop
Reuters reported Citi set a 7,700 year-end 2026 target for the S&P 500, describing AI infrastructure build-out as a key theme and estimating 2026 index EPS at $320 (versus consensus around $310), while expecting the AI focus to evolve from “enablers” to “adopters.” [23]
That matters for industrials because many industrial firms are either:
- enablers (power, cooling, construction, logistics), or
- adopters (automation, AI-driven productivity in manufacturing and maintenance).
Bottom-up analyst targets suggest upside—but with historical caveats
FactSet’s John Butters reported that industry analysts’ aggregated “bottom-up” target implied an S&P 500 level of 7,968.78 in 12 months as of Dec. 11—about 15.5% above the Dec. 11 close of 6,901.00—while also noting that analysts have historically tended to overestimate year-ahead levels on average over long horizons. [24]
For industrials, the takeaway isn’t a single number—it’s that earnings expectations are doing much of the heavy lifting, and 2026 outcomes may depend more on execution and demand durability than multiple expansion.
Europe’s fiscal impulse could support select industrials globally
RBC Wealth Management’s 2026 outlook points to Europe potentially benefiting from infrastructure investment and defense spending—particularly linked to Germany—and says it continues to prefer sectors likely to benefit from fiscal stimulus, including select Industrials. [25]
That is relevant even for U.S.-listed industrials, because many global industrial leaders have meaningful European exposure via orders, production footprints, and supply chains.
The macro crosscurrents industrials investors can’t ignore
Industrials stocks sit at the center of two competing economic narratives:
1) Growth is still expanding—but momentum is cooling
Reuters reported S&P Global’s preliminary (flash) composite PMI eased to 53.0 in December from 54.2 in November, and noted new orders for goods fell for the first time in a year; the flash manufacturing gauge slipped to 51.8. [26]
2) Manufacturing has been under pressure, with tariffs a persistent theme
Earlier, Reuters reported U.S. manufacturing contracted again in October, with the ISM manufacturing PMI at 48.7, and cited tariff-related uncertainty as a key factor in supplier delays and subdued demand. [27]
Schwab’s 2026 outlook similarly frames tariffs as a central 2026 macro variable, expecting a “high-tariff world” to persist and noting tariffs lift prices on imported—and even domestic—goods. [28]
For industrials stocks, this is the tension: AI and infrastructure capex can accelerate, while tariff-driven uncertainty and weak pockets of manufacturing can suppress broad-based order growth.
What to watch next: near-term catalysts for industrials stocks
Here are the catalysts likely to matter most after Dec. 20, 2025:
- Rail merger process milestones
Watch early STB responses and stakeholder filings during the initial review window following UP/NS’s application. [29] - Aerospace certification and regulation headlines
Boeing’s waiver request timeline (seeking approval by May 1) and updates on 777X/777-8F timing can move sentiment across the aerospace supply chain. [30] - Freight demand signals
FedEx’s operational updates around the MD-11 fleet and holiday-season cost impacts, plus any incremental visibility on freight pricing and volumes, will shape transport and industrial demand expectations. [31] - FedEx Freight spin-off timeline
With a planned separation date of June 1, 2026 and an April 8, 2026 investor day, the market will increasingly model FedEx as two businesses—parcel logistics and a standalone freight operator. [32] - PMI and industrial-activity releases
Industrial stocks often react quickly to PMI surprises because they feed directly into “orders” narratives. S&P Global has emphasized the market impact of flash PMIs and related macro releases in its December calendar preview. [33]
Bottom line for Dec. 20, 2025
Industrials stocks enter 2026 with a stronger narrative foundation than they’ve had in years: a credible capex upcycle linked to AI infrastructure, ongoing defense modernization, and large-scale network and logistics investments. [34]
But the sector’s outlook is not one-way. The same period is also marked by uneven manufacturing conditions, tariff-related uncertainty, and the kind of operational shocks (like grounded aircraft fleets and merger scrutiny) that can quickly reprice risk. [35]
References
1. www.investopedia.com, 2. www.reuters.com, 3. www.marketwatch.com, 4. www.cbsnews.com, 5. www.schwab.com, 6. www.nasdaq.com, 7. www.reuters.com, 8. www.reuters.com, 9. www.reuters.com, 10. www.reuters.com, 11. www.reuters.com, 12. www.reuters.com, 13. www.reuters.com, 14. www.reuters.com, 15. investors.fedex.com, 16. investors.fedex.com, 17. www.reuters.com, 18. www.reuters.com, 19. www.freightwaves.com, 20. www.barrons.com, 21. newsroom.bankofamerica.com, 22. newsroom.bankofamerica.com, 23. www.reuters.com, 24. insight.factset.com, 25. www.rbcwealthmanagement.com, 26. www.reuters.com, 27. www.reuters.com, 28. www.schwab.com, 29. www.reuters.com, 30. www.reuters.com, 31. www.reuters.com, 32. investors.fedex.com, 33. www.spglobal.com, 34. www.cbsnews.com, 35. www.reuters.com
