Fed Cuts Brighten Picture for Industrial Stocks

Lower interest rates will help the economy recover, which will trigger demand for machinery and equipment down the line

By Michael Jaffe

S&P is raising its recommended portfolio weighting on the industrial sector to marketweight from underweight.

In light of the Federal Reserve Bank's aggressive rate cuts, including Wednesday's 25-basis-point rate cut to 3.75%, S&P is now more positive on industrials. Lower interest rates will help firm up the economy and spur capital spending, although it will likely take some time before spending is revitalized.

For now, S&P would stress some of the industry groups within the sector with less extreme cyclicality, such as engineering and construction, and some services businesses.

S&P's 5 STARS (buy) picks include electrical components maker Tyco International (TYC ), engineering consulting firm Jacobs Engineering (JEC ) and speciality-tool maker Kaydon (KDN ).

Jaffe is an equity analyst for Standard & Poor's

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