U.S. Durables Ex Defense Data and Sector Rotation Opportunities: Metals vs. Automobiles in 2025

The U.S. non-defense durable goods orders report for October 2025 reveals a stark divergence between the Metals/Mining and Automobile sectors, offering critical insights for investors navigating sector rotation strategies. While the broader durable goods category contracted by 2.2% month-over-month, the Metals sector showed resilience in fabricated products, while the Automobile sector faced affordability headwinds. This analysis unpacks the data and identifies actionable opportunities.

Metals/Mining: Resilience in Fabricated Products, Weakness in Primary Metals

The Metals/Mining sector's performance was mixed but nuanced. Primary metals orders—encompassing steel, aluminum, and other base metals—declined by 0.7% in October to $27.2 billion, reversing a modest 1.5% gain in September. This contraction aligns with broader transportation equipment weakness, which fell 6.5% due to collapsing aircraft orders. However, fabricated metal products—used in machinery, appliances, and infrastructure—rose by 0.5% to $41.9 billion, extending a positive trend since August.

This dichotomy reflects structural shifts: while global supply chain adjustments and tariffs have pressured raw material demand, fabricated metals remain insulated by robust capital spending. Non-defense capital goods excluding aircraft—a proxy for business investment—rose 0.5% in October, signaling continued demand for industrial machinery and infrastructure equipment.

Automobiles: Stabilization Amid Affordability Crises

The Automobile sector posted a tepid 0.1% increase in October, extending a six-month upward trend but marking a slowdown from the 0.6% average growth in prior months. This modest gain was driven by pent-up demand for gas-powered vehicles, as automakers like Ford and General Motors discontinued underperforming electric vehicle (EV) models. For example, one Detroit Three automaker axed its electric full-sized pickup after sales failed to meet targets, reverting to its gas-powered counterpart.

However, underlying challenges persist. New vehicle prices now exceed $50,000, straining consumer budgets. Despite three Federal Reserve rate cuts since September 2025, vehicle loan rates remain elevated, and stricter underwriting standards limit access to credit. The expiration of EV tax credits in September further dampened demand, with sales of electric vehicles declining sharply in October.

Sector Rotation Strategy: Metals Over Automobiles?

The data suggests a strategic tilt toward the Metals sector, particularly fabricated metal producers, over Automobiles. Here's why:

1. Fabricated Metals as a Safe Haven: With primary metals facing demand volatility, fabricated metal products—used in machinery, construction, and energy infrastructure—offer more stability. Companies like Caterpillar (CAT) and Mittal Steel (MST) are well-positioned to benefit from capital spending trends.
2. Automobiles: Policy-Driven Volatility: The sector's performance is increasingly tied to policy shifts (e.g., EV tax credits) and affordability dynamics. While short-term stabilization is likely, long-term growth hinges on price corrections or regulatory tailwinds.
3. Macro Tailwinds for Metals: The Fed's cautious approach to rate cuts in 2026 and rising tariffs on imported goods could drive demand for domestically produced fabricated metals, particularly in infrastructure and energy transition projects.

Investment Recommendations

• Long Fabricated Metals: Overweight stocks in the fabricated metal segment, such as Parker-Hannifin (PH) and Illinois Tool Works (ITW), which benefit from industrial and infrastructure demand.
• Short-Term Automaker Exposure: Consider selective exposure to automakers with strong gas-powered vehicle portfolios, like Ford (F), but avoid overcommitting due to pricing pressures.
• Hedge Against Policy Risk: Use options or ETFs (e.g., XLI for industrials) to hedge against sector-specific volatility tied to EV subsidies or interest rate movements.

Conclusion

The October 2025 durable goods report underscores a critical inflection point for U.S. manufacturing. While the Automobile sector faces affordability and policy headwinds, the Metals sector—particularly fabricated products—offers a more resilient path amid capital spending and infrastructure tailwinds. Investors should prioritize data-driven positioning, leveraging sector rotation to capitalize on divergent industrial cycles.