The sharp selloff in US industrial stocks over the past month is setting off alarm bells across Wall Street. The S&P 500 Industrials Index has fallen nearly 10% from its mid-August record high and closed below its 200-day moving average on September 14, the first time since President Trump's trade war hit the sector in early 2025. The index, which includes manufacturing giants such as Caterpillar Inc (CAT.US), GE Aerospace (GE.US), RTX Corp (RTX.US), and Deere & Co (DE.US), has since closed below that long-term momentum indicator every trading day.

From a technical standpoint, data from Bespoke Investment Group shows that the September 14 breakdown ended the index's record streak of 340 consecutive trading days closing above its 200-day moving average, the longest such run since March 2018 and the sixth-longest since 1990. The end of that record marks a substantial breach of the long-term momentum structure, and Brian Mulberry, chief market strategist at Zacks Investment Management, noted that falling below the key moving average "is likely to intensify downward momentum in the short term."

Signals from fund flows are equally troubling. The Industrial Select Sector SPDR Fund (XLI.US), which tracks the industrial sector, is facing its second-largest monthly outflow since April 2025, surpassed only by the initial days of the Iran war in March this year. Behind the outflows is a steadily deteriorating macroeconomic backdrop. In recent weeks, tensions in the Middle East have persisted, and shipping through the Strait of Hormuz remains severely disrupted, a waterway that carries about one-fifth of the world's oil and natural gas. On Thursday, Brent crude once again broke above $100 per barrel. At the same time, the 30-year US Treasury yield hit a new high since 2004, while the 10-year Treasury yield reached its highest level since 2007.

The simultaneous surge in oil prices and bond yields is creating a double squeeze on the industrial sector. On one hand, crude oil has pushed diesel prices to record highs, directly raising fuel costs for transportation and manufacturing companies. On the other hand, rising interest rates increase financing costs for capital-intensive manufacturers while threatening the overall economic demand that supports their sales. Brian Sponheimer, portfolio manager at Gabelli Funds, said, "This sets the stage for a pullback. If you're a trader, the path of least resistance right now is to hit the sell button."

Against this backdrop, individual stocks including FedEx Corp (FDX.US), GE Aerospace (GE.US), and Stanley Black & Decker Inc (SWK.US) have each fallen by 10% or more.

A Growing Crack in the AI Narrative: From Growth Engine to Source of Pressure

A major driver of the industrial sector's earlier rally came from expectations that the rapid buildout of AI data centers would boost demand for industrial equipment. Technology companies are investing hundreds of billions of dollars in data center construction, generating strong demand for power generation units, electrical equipment, and engineering machinery. However, this logic has come under severe strain in recent months.

In mid-September, Anthropic CEO Dario Amodei proposed slowing the pace of frontier AI model development, triggering a broad selloff in AI infrastructure stocks. GE Vernova (GEV.US) plunged nearly 9% that day, Caterpillar Inc (CAT.US) fell more than 4%, and Vertiv Holdings (VRT.US) dropped nearly 8%. Debate on Wall Street about what stage the AI capital expenditure cycle is in has also fluctuated. William Blair noted in a September 11 research report that investors' bigger concern is that "we may already be in the later stages of the capex cycle, where returns are beginning to disappoint and excess capacity is starting to build."

At the same time, growing public resistance to data center construction is adding selling pressure. Mark Hackett of Nationwide pointed out that this resistance, combined with uncertainty over capital expenditure expectations, has hit power equipment and engineering machinery stocks hardest. Matt Maley, chief market strategist at Miller Tabak, cautioned that industrial giants like Caterpillar Inc (CAT.US) have long been viewed as barometers for the broader market, and their deep integration with the AI supply chain has further reinforced that importance. "If the weakness in this sector persists, it should raise broad investor caution," Maley said.

Deere Defies the Trend: Agricultural Recovery Logic Independent of the Industrial Selloff

Against the backdrop of broad pressure on the industrial index, Deere & Co (DE.US) has become one of the few components posting gains, rising 17% during the index pullback. Deere's strong performance is closely tied to the rebound in agricultural commodity prices. Corn futures hit their highest level in more than three years last week and are up nearly 22% year to date, mainly driven by expectations of tightening supply. Soybean futures have also risen 22%.

Baird analyst Mircea Dobre upgraded Deere & Co (DE.US) from "neutral" to "outperform" and sharply raised the price target from $640 to $800. In his research note, he wrote, "Mid-2027 corn futures prices are already above farmers' break-even levels, and the soybean outlook has improved as well. Deteriorating crop conditions and the 2026/27 stock-to-use ratio both point to sustainable price momentum and rising per-acre farmer margins, which are highly correlated with future equipment demand." Dobre believes Deere & Co (DE.US) "offers the clearest investment case because of its high exposure to North American row crop equipment demand. When investors look for a turning point in agricultural fundamentals, this is the 'first stock to buy.'"

Deere's shares have risen more than 53% so far in 2026 and are on track for their seventh annual gain in eight years, as well as their best annual performance since a 55% surge in 2020. However, 12 of the 26 analysts covering the stock still rate it a "hold," reflecting disagreement over its upside potential.

Although the technical and macroeconomic signals are not encouraging, multiple indicators show that the industrial sector has entered oversold territory. Adam Turnquist, chief technical strategist at LPL Financial, is closely watching the key level of 1,415 points. He noted that a break below that threshold "could open the door to downside toward 1,320 points," a level where the index previously found support. The index closed at about 1,440 points on Wednesday. But Turnquist also emphasized that analysts' earnings growth expectations for the industrial sector remain strong and that the index is already oversold. In his research note, he wrote, "This level of selling pressure points to a 'washout' condition, which historically has often signaled at least a short-term rebound."