Artificial intelligence has redefined the way certain industries operate within the Industrial sector, leading to notable advances in aerospace & defense, construction & engineering, and manufacturing. Why does this matter for investors? It makes companies more efficient and allows management to focus on profits and company goals. In aerospace & defense, AI is used in flight operations to analyze weather and air traffic data. Sensors also run predictive analytics that identify potential problems with an aircraft. In defense, AI provides tools for strategic decision-making, threat monitoring, and cybersecurity. Indeed, when defending against cyber-attacks, technology can learn patterns and create improved layers of protection. In construction and engineering, AI can optimize the design process, using advanced algorithms and simulations to identify the best configurations and optimal product performance. AI also has capabilities to efficiently allocate resources on a construction site and anticipate potential risks. The technology can provide real-time insights that help in negotiations with suppliers, task organization, and risk prevention. In manufacturing, AI solutions are analyzing production data and demand forecasts to streamline production schedules and resources planning. It is also improving the effectiveness of order-management systems to decrease fulfilment lead times. Studies by McKinsey have concluded that machine downtime can be reduced by 30%-50% and quality costs can be decreased by 10%-20%. Others have predicted that AI in manufacturing will be a $21 billion market by 2028. The following is a list of Argus BUY-rated stocks in the Industrial sector that are leaders in the use of AI.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Northrop Grumman is a diversified defense contractor providing aeronautics, defense, and space systems. The company’s aerospace segment creates the fuselage for the massive F-35 program and produces autonomous and piloted aircraft such as Global Hawk drones and the new B-21 bomber. Defense systems makes artillery and missile ammunition and guidance systems, missile defense systems, and maintains and upgrades numerous military aircraft. Mission systems creates and integrates a variety of radar, navigation, and communication systems for avionics, weapons control, and countermeasures on a range of platforms from helicopters to destroyers. Finally, space systems produces satellites, sensors, space structures, and manufactures long-range missiles and rocket motors.

This is a big week for economic data (especially when assuming the data might support the belief that the Federal Reserve should cut the fed funds rate at the September 18 meeting). We have July PPI this morning; July CPI on Wednesday; July Retail Sales, Industrial Production, the Philly Fed, Empire State Manufacturing, and initial jobless claims on Thursday; and July Housing Starts and Consumer Sentiment on Friday. While the majority of S&P 500 companies have reported Q2 results, we have some big reports remaining, including AMAT, BABA, CSCO, DE, HD, and WMT. As expected, stocks did very little on Monday as market participants sat on their hands and waited for the news flow to dictate the next short-term direction of the market and interest rates. The small-caps did fall, with IWM down 0.9%, SML off 1.2%, and MDY down 0.6%. Information Technology rose 0.8% and Energy was up 0.5%, but Communication Services, Real Estate, Staples, Financial, Industrials, Discretionary, Healthcare, and Materials were all off from 0.4% to 0.7%. The three major indices all traced out doji candlesticks on Monday, a sign of indecision. They also all failed right at their flattening 13-day exponential averages. Some key short-term resistance levels for the S&P 500 include a 50% retracement of the recent decline at 5,395, the breakdown level at 5,400, the flat 50-day average at 5,449, and a 61.8% take-back at 5,460. For the Nasdaq, a 50% retracement sits at 17,190, which is also the breakdown level; the 50-day and a 61.8% take-back target 17,540. For the Nasdaq 100, a 50% retrace is at 463.50 and the 50-day and a 61.8% take-back are at 473. (Mark Arbeter, CMT)