(Bloomberg) -- An unlikely cohort has climbed to the top of the S&P 500 Index’s leaderboard, powered by a resurgence of the America First trade this week as tariff tensions eased, at least for now.

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Industrials, the companies that manufacture goods and transport them, leaped ahead of the 10 other major sectors in the benchmark on a year-to-date basis following the US and China’s trade truce at the start of the week. They were lingering in 3rd place as recently as a week ago. Those stocks are up 7.8% for the year, while the S&P 500 is roughly flat.

It’s unusual for the group, stacked with companies that have steady but slow-growing businesses, to outperform the broader market — they haven’t done so on an annual basis in the past decade. The shift toward the segment — with General Electric Co. and Deere & Co. among firms leading the charge — is a bet that waning trade friction will help the US economy rebound after a feeble first quarter.

“The whole ‘America First, Buy US’ is a really pro-industrial narrative,” said Jeff Buchbinder, chief equity strategist at LPL Financial. “A healthy bull market is led by the cyclical sectors that benefit most from economic growth,” referring to industrials, utilities and financials outperforming this year.

In the past week, renewed optimism around the American economy has propelled US stocks ahead of benchmarks in Europe, China and Mexico. It’s part of a strengthening risk-on tone that has some market-watchers and options pros positioning for the S&P 500 to eclipse its February record high in the coming months, after approaching a bear market just weeks ago.

Recession Specter

Whether the cohort will continue to lead gains remains to be seen, given the specter of an economic recession still looming in the horizon. The risk of a slowdown in growth also remains high given that tariffs can disrupt businesses and stoke inflation. This week, billionaire Steve Cohen said the chance of a recession in the US now stands at about 45%, noting that there is already “significant slowing growth.”

LPL’s Buchbinder also warns about continuing trade risk, which is the reason he cited when he recently downgraded industrials to neutral.

“The sector is pricing in a lot of optimism now,” he said. “Even though the trade risk is lower now, it is still there and you cannot dismiss it.”

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Nicholas Colas of DataTrek Research says the rally in industrials is getting stretched, noting the sector now trades for nearly 23 times forward earnings, much higher than its 10-year average of about 19.

Path Ahead

But for now, industrials and utilities are the only sectors that are in the green since the S&P 500 hit an all-time high in February. Industrials have been outperforming the broader benchmark over the past 100 days after generally trailing it over comparable stretches since 2015, according to analysis from DataTrek.

HSBC Holdings Plc strategists said the earnings expectations for economically sensitive companies seem to have bottomed out, suggesting a recovery is on the horizon. Bank of America Corp. strategists, meanwhile, said that investors calling for “the end of US exceptionalism,” may be forced back in and further feed the rally.

As long as there’s no major shock on the trade front, Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report, sees industrials and other cyclical stocks continuing to outperform.

Tentarelli upgraded industrials, along with semiconductors and banks to overweight earlier this week, citing the tariff pause between the US and China.

“Industrials and banks are the two sectors you want to buy if you believe the economy is either going to accelerate or not slow down as much as expected,” he said.

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