Wolfe Research has upgraded its outlook on the U.S. Electrical Equipment and Multi-Industry sector, moving it from “market underweight” to “market weight.” This change means the firm now sees the sector as more fairly valued after a slow performance compared to the S&P 500 and other industrial groups earlier this year.
So far in 2025, the sector has gained about 8.7%, which is around five percentage points lower than the S&P 500’s rise. It has also fallen behind global capital goods companies, which are up nearly 17% this year.
According to Wolfe, the sector’s price-to-earnings ratio for the next 12 months is around 22 times. This sits between its one-year and ten-year averages and is lower than its late-July peak of 24 times. That puts it at a rare 4% discount compared to the broader stock market, which makes valuations look more appealing right now.
Some companies in the sector have benefited from the ongoing boom in data centers and artificial intelligence. Vertiv, for example, has gained 15.6% this year thanks to strong demand in those areas. However, others like Hubbell and Generac have pulled the sector down due to weaker forecasts and valuation concerns.
Distributors have also struggled, with Fastenal’s stock falling about 1.7% as investors questioned whether its high valuation can be justified.
Wolfe Research said the sector’s weaker performance this year mainly comes from softness in the residential HVAC market and a broader cooling of earlier growth hopes.
Looking ahead, the firm believes the picture could brighten in 2026. If the ISM manufacturing index moves back above 50, which signals growth, and the Federal Reserve continues to cut interest rates, the sector’s valuations could rise again, paving the way for a rebound.