Soaring Industrial Shares Face Headwinds From Trump Trade Policy

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(Bloomberg) — Earnings reports from some of the largest US manufacturers and transportation companies this week drove home how President Donald Trump’s policies on trade and energy are putting a squeeze on the sector’s profits.

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Caterpillar Inc, which imports raw materials and parts for construction equipment, said it expects the president’s levies to cost about $2.6 billion this year. Railroad Norfolk Southern Corp. said trade policy is eroding demand for some of its business lines, and shipping giant United Parcel Service Inc. said trade flows are shifting in a way that’s pressuring margins.

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Meanwhile, on the energy front, power-equipment company GE Vernova Inc. took a hit last month after the Trump administration required work to stop on a wind farm off the coast of Massachusetts. Its wind business recorded a wider-than-forecast $225 million loss last quarter.

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The sector overall has been handily beating the broader stock market in the past two months as investors see it benefiting from the artificial-intelligence boom. However, the strains that were apparent in this week’s results show how Trump’s efforts to boost American manufacturing are cutting both ways for some producing headwinds for their business as they await more advantageous tax-related policies to kick in.

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“The policy cadence has been more foe than friend for industrials in the near term,” said Joe Gilbert, a portfolio manager at Integrity Asset Management. “Industrials have taken their medicine first with tariffs and policy halts and the candy — tax expensing — will come later.”

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Gilbert says he’s positive on transportation and machinery stocks, expecting them to benefit from growth in the industrial economy.

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Industrial stocks have had the of wind at their back lately. 

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Some of that is thanks to Trump and Congress, led by his fellow Republicans: Last year’s tax and spending bill included immediate expensing for investments, a provision that favored the sector directly. Investors are also anticipating that higher refunds this tax season will buoy consumers and brighten the US economic outlook, helping these companies.

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Another big catalyst: AI euphoria. Caterpillar and GE Vernova are seeing strong demand for their power-generation equipment, which drove up their stocks after this week’s reports. GE Vernova said it’s in frequent talks with the White House about ramping up production of its natural-gas turbines. 

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For investors, GE Vernova’s AI-driven strength has offset the pressure from a wind segment that it expects to keep losing money this year. To be sure, a federal judge ruled this week that a project off of Martha’s Vineyard could go forward.

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Still, the unit’s “substantial headwinds” weighed on guidance for the year, Colin Rusch, an analyst at Oppenheimer, wrote in a note to clients. At the same time, he said demand in its power and electrification businesses is beating expectations.