ClearBridge Investments, an investment management company, released its “ClearBridge Small Cap Strategy” second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The small-cap stocks experienced volatility in the second quarter. The Russell 2000 Index rebounded 10% of its November 2024 record highs just 55 days after the “Liberation Day” decline. It was driven by growth, momentum, high-beta, and low-quality stocks. Even though small-cap stocks rose, they failed to outpace the larger ...

Core Insights - The industrial sector in 2025 is influenced by cyclical recovery, policy stimulus, trade-driven structural shifts, and volatile PMI movements, with early-year optimism fading mid-summer before rebounding in August [1] - The S&P 500 Industrials Select Sector SPDR (XLI) achieved a year-to-date return of 16.1% as of July, with a 12-month performance of 20.6%, despite experiencing volatility in Manufacturing PMI readings [2] - Geopolitical factors and tariffs have impacted input prices and inflation, prompting firms to reshore production and diversify suppliers, which has bolstered industrial demand [3] Manufacturing PMI and Sector Performance - The S&P Global PMI rose to 50.1 in January, indicating expansion, but fell to 49.8 by July, reflecting contraction due to cooling demand and tariff-related stress, before rebounding to 53.3 in August [2] - The rebound in August was driven by increases in new orders, inventories, and hiring, alongside easing supply-chain pressures [2] Macro and Geopolitical Influences - Ongoing tariffs have raised input prices and inflation, leading to increased industrial activity as firms adapt to these pressures [3] - Policy support through infrastructure spending and incentives for on-shoring has positively influenced investor sentiment and industrial earnings outlooks [3] Investment Opportunities - Companies such as Kaiser Aluminum Corporation (KALU) are projected to have an earnings growth rate of 84.9% for the current year, with a Zacks Consensus Estimate improvement of 11.3% over the past 60 days [5] - AGCO Corporation (AGCO) is expected to see a 36.7% earnings growth rate next year, with estimates up 13.8% recently [6] - Hudson Technologies, Inc. (HDSN) anticipates a 19.2% earnings growth rate for the next year, with a significant estimate increase of 27% over the past 60 days [7] Conclusion - The U.S. industrial sector presents an attractive investment landscape for 2025, supported by policy initiatives and structural shifts in trade and manufacturing, despite the challenges posed by tariffs and geopolitical tensions [8][9]