By Barbara Kollmeyer
It's way too soon to go near anything touching consumers, says Wolfe Research strategist
Substations and transformers are seen at a Digital Realty data center in Ashburn, Virginia on November 12, 2025. Wolfe Research's Nigel Coe says be picky with those data-center and industrial plays.
It's Fed decision day, and with a rate cut all but baked in, investors will be hanging on every word Chair Jerome Powell has to say.
While tech stocks have dominated this year, the S&amp;P 500 industrials sector XLI has been the third-best performing sector, up 17%, behind a 26% return for info tech and a 32% gain for communications services.
GE Vernova (GEV) has surged 92%, with a turnaround story putting it in a sweet spot as AI data centers look for power, but on the other end, UPS (UPS) and Lennox (LII) have seen double-digit losses.
That breakdown is an example of the bifurcation story that requires careful stock picking, which is discussed in our call of the day from Wolfe Research's managing director and head of U.S. capital goods, Nigel Coe.
&#34;We've got pockets of growth and we've got pockets of no growth,&#34; he told 'Big Short' investor Steve Eisman in a podcast.
Anything touching data-center growth is seeing fast growth, and companies that aren't are seeing the opposite, he said.  What matters now, versus 10 years ago when valuations and high margins were important, is sales growth and earnings per share momentum, said Coe.
He said while valuations look rich for some of the data-center plays, provided EPS keeps moving higher, then some stocks will probably keep working.
Coe sees that happening for the big plays in that space - nVent (NVT), Vertiv (VRT) and Wesco (WCC), with outperform ratings on those stocks. Shares of another big player, Eaton (ETN), have struggled, up just 3% in 2025, because of some legacy businesses that are seeing pressure, such as heavy-duty trucks, he said. While Eaton is the biggest supplier of electrical equipment in North America, with a market share of about 30%, he's staying on the sidelines because its EPS numbers haven't been moving higher.
He also sees growth pockets in aerospace and defense, as the airline industry continues to rebuild after the pandemic, with companies like Honeywell (HON) in that space.
On the &#34;no growth&#34; side of industrials is &#34;really anything touching the consumer&#34; - Stanley Black &amp; Decker (SWK), HVAC companies like Lennox (LII) and Carrier (CARR), all seeing negative growth right now, he said.
That leaves the industrial choice obvious for now, he said. &#34;Data center AI remains very strong, so that's where the growth is going to continue. I think the question is that after, you know many stocks have been up 100% 200% 300%, how much more upside is there to the multiple.&#34;
&#34;I think for most investors, in our view, it's probably too soon to weigh into the consumer and residential housing at this point in time. I think we need to have better visibility on the rate reduction cycle, the Federal Reserve easing cycle. I think that probably remains a story for maybe the second half of next year, &#34;he said.
But if the housing market looks like it might improve later next year, he'd want the stocks most leveraged stocks to that - Lennox and Stanley Black &amp; Decker.
Another tough spot for industrials is a more cyclical part of the economy - Rockwell Automation (ROK), Parker Hannifin (PH) and 3M (MMM) - that hasn't seen a whole lot of growth, he said. A turning point he's watching for is if the Institute for Supply Management manufacturing index, below 50 fir for three years, finally pushes above that level indicating growth, said Coe.
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are trading cautiously, Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are easing and (SI00) continues its march higher.
The buzz
A Fed decision on interest rates is coming at 2 p.m., followed by a news conference with Fed Chair Jerome Powell at 2:30 p.m. While the Fed is expected to deliver a rate cut, much attention will focus on how many voting members dissent, and what Powell will say about future cuts.
Cracker Barrel's (CBRL) return to its &#34;Old Timer&#34; logo didn't help the restaurant and gift-shop chain's sales or earnings, down sharply in its latest quarter. Shares are dropping.
GameStop's shares (GME) fell over 5% after the original meme stock reported falling sales and profits, along with the value of its bitcoin holdings.
Activist investor Elliott said it now has a 5% stake in Toyota Industries (JP:6201), the forklift maker that a Toyota Motor (TM)-led consortium is trying to buy.
Results are due from Oracle (ORCL), Adobe (ADBE) and Synopsys (SNPS) after the close.
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The chart
The chart from Jonathan Golub, chief equity strategist at Seaport Research Partners, offers his take on what really matters to stocks. &#34;It's our version of a correlation measure. It measures the S&amp;P 500/Russell return on days where the 3 month Treasury, 10 year Treasury, or HY high yield] spread rose or fell. The chart shows the average return on up yield days minus down yield days. It basically shows that the market is much more sensitive to changes in spreads than Treasury yields,&#34; Golub said in an email. Junk bond spreads are the extra yield required to attract investors over Treasurys.
Top tickers
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-Barbara Kollmeyer
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12-10-25 0700ET

<p>Wolfe Research's Nigel Coe advises caution in industrial stocks, favoring data-center growth plays like nVent, Vertiv, and Wesco, while avoiding consumer-related stocks like Stanley Black & Decker and Lennox. He highlights growth in aerospace and defense sectors and suggests waiting for better visibility on rate reductions before investing in consumer and housing stocks. Coe also notes cyclical challenges in industrials and watches for growth signals from the ISM manufacturing index.</p>

Industrials stocks have been red-hot this year - mostly. One analyst explains which stocks to buy and which to avoid.