Industrial revolution again ?

Looking at the world of ETFs and trying to discern trends - one sector that stands out is the industrial sector. The ETFs that represent the industrial sector well are XLI, ITA, IYJ and PPA. PPA ETF also includes the aeronautic sector too. Looking at XLI chart,

it has been quite bullish this year - returning nearly 13 % year to date and a big chunk of it - about 4 % - just during last one week. Underlying stocks which move the industrial index are very strong with even a super jumbo stock like GE moving nearly 3.2 % up today. Talking of super jumbo jets, the apparent reason for the move being that GE is the big winner from the Paris air show where Boeing and Airbus bagged several billion dollar orders and to whom GE is a big vendor.

Some speculate the real reason for the strong showing by the industrial sector is due to the industrial revolution - happening in China, India and other emerging markets. Companies in the industrial ETFs are the biggest vendors of industrial equipment in these markets. Also, for the US based industrial vendors, it really helps that the dollar is weak and being the "low cost" vendor for a change. The profits when converted to dollars helps in higher earnings and since profits is what that moves markets, even a super jumbo stock like GE.

I think one can say that today was an anti-dollar day with gold ( GLD ) and euro ( FXE ) both moving up. Oil ( USO ) has been on rally lately - one cannot be sure if it is a rebound or just a bounce. The energy ETFs like XLE and OIH have been on a tear lately and performing quite independently of the underlying commodity itself. Comparing XLE, OIH and USO, one observes that XLE, stocks-based energy ETF, is up 21 % and oil service holders, OIH, is up 29 % year to date although the underlying oil commodity (represented by USO) is up just 1 % year to date. This disconnect between the energy stocks and oil commodity is quite amazing. One reason, is that although the oil commodity has not been great performer, the energy stocks are performing much better as the oil price is high enough for oil producers to invest in exploration and with literally no new refining company being started, the refining margins are driving huge profits at the "big oil".

The global markets have been having a silent rally going back to the recent highs (before the so called bonds plunge). The Chinese ETF (and Chinese ADRs like PTR, CEO) have been on a tear and analysts are back to using the bubble word. But folks say that investing in China now is like investing in US back in the industrial revolution days. But hey, Petrochina's market cap is about 255 Billion which is valuation more from "dot com" age than that of "industrial revolution" .

To wrap up, here are few spotlight charts ..