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INDUSTRIALS OUTPERFORM WITH AI IN THE DRIVER'S SEAT

The S&P 500 industrials sector .SPLRCI was up 2% on Thursday, hitting a record high and making it the leading gainer among the benchmark's 11 major sectors. This was after data showed strong economic growth with a big boost from spending on AI.

While Wells Fargo Investment Institute already had an overweight rating on the sector, senior global market strategist Scott Wren said the latest gross domestic product (GDP) and capital goods reports were big supports on the day.

Specifically, Wren noted that capital goods orders excluding defense and aircraft growth came in at 1.6% compared with expectations for 0.6%.

"That tells me that business capital expenditures are pretty darn good. The industrial sector benefits a lot from that," he told Reuters in an interview.

Separately, GDP data showed that the U.S. economy grew by 2.1% at a quarterly annualized rate in the first three months of 2026, versus the 1.6% previously reported, and the fourth quarter's 0.5%.

And within that report, Wren noted that "three quarters of growth in the first quarter was due to AI," which he sees as a massive boost to industrials as AI boosts demand for technology data centers and electric power.

"Building data centers and upgrades to the power grid require products from industrial companies like trackhoes, bulldozers and power generation equipment," said Wren. "If AI adoption is a multi-year trend, industrials will benefit from it."

Funny he should mention bulldozers because the top industrials gainer on the day was Caterpillar CAT.N. Other big gainers included Ingersoll Rand IR.N, up more than 5%, and Xylem XYL.N, United Rentals URI.N and Rockwell Automation ROK.N, which all rose more than 4%.

While industrials is already the second-biggest year-to-date percentage gainer among the major S&P 500 .SPX industry sectors, Wren says it is not done yet: "Over the course of this year in the last handful of months industrials have started to perform. I'd expect that to continue."

(Sinéad Carew, Stephen Culp)

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