CAPITAL GOODS SECTOR
The capital goods sector (also referred to as the “industrials sector”) is a category of stocks related to the manufacture or distribution of goods. The sector is diverse, containing companies that manufacture machinery used to create capital goods, electrical equipment, aerospace and defense, engineering, and construction projects.
Performance in the capital goods sector is sensitive to fluctuations in the business cycle. Because it relies heavily on manufacturing, the sector does well when the economy is booming or expanding. As economic conditions worsen, the demand for capital goods drops off, usually lowering the prices of stocks in the sector.
CONSIDERATIONS
Aspects of the capital goods sector can face permanent change rather than simply be affected by cascading market fluctuations. The introduction of a new type of product or device could mean expansion for companies in the capital goods sector. The development of alternative energy concepts often calls for new infrastructure to be built. The expansion and spread of offshore wind farms to produce energy will increase demand for the wind turbines that are central to the industry. That means makers of the turbines will need more factories to produce the parts for these massive machines.