JPMorgan's Steve Tusa talks industrials outlook for 2026

Core Viewpoint - The industrial sector has shown surprising resilience, particularly driven by data center demand, with a notable divergence in performance between different segments of the industry [1][4][5]. Data Center Trade - The demand for data centers has significantly increased in the second half of the year, indicating a strong growth trajectory [4][12]. - Despite concerns about the sustainability of the cycle, on-the-ground order activity for data centers remains robust, suggesting that the industry is still in the early stages of a buildout [12][14]. Performance Divergence - The industrial sector's performance has lagged behind the S&P 500, with a 7% increase compared to the S&P's 15% [5]. - There has been a notable divergence within the sector, particularly among residential HVAC stocks, which have seen declines of 20-30% in the second half of the year [10]. Investment Opportunities - Companies like Johnson Controls and Verdive are highlighted as strong investment opportunities, with potential earnings growth of 15-20% over the next few years [8]. - The focus remains on data center-related investments and economically leveraged plays, with a cautious approach towards residential HVAC stocks for the time being [10][11]. Economic Leverage - Dover and DuPont are identified as relatively cheap economic leverage plays, suggesting potential for growth as the economy evolves [10]. - The overall sentiment indicates a preference for maintaining exposure to data centers while exploring economically leveraged opportunities [11].