Key Highlights

● The jet-engine maker traded firmly higher as money rotated into industrial and defense names.

● Third-quarter adjusted EPS and Revenue both beat expectations.

● Full-year guidance was raised for revenue, operating profit and adjusted EPS.

● Free Cash Flow fell to $2.0 billion on working capital.

GE Aerospace (NYSE:GE) climbed on Thursday as money flowed out of mega-cap technology and into industrial and defense names, with the jet-engine maker's third-quarter beat and raised outlook giving buyers a reason to step in.

Engines of a rotation

GE Aerospace traded firmly higher during Thursday afternoon, according to one report, which cited a solid gain around 3:15 p.m. Eastern time. The company, which makes engines for commercial airliners and military aircraft and services a large installed fleet, was one of several industrial and defense stocks that benefited as investors hunted for alternatives to the AI trade.

According to the same report, GE Aerospace's third-quarter adjusted Earnings Per Share and revenue both came in ahead of expectations. Commercial engine orders were strong, and the company raised its full-year guidance for revenue, operating profit and adjusted earnings per share.

One soft spot

There was one blemish. Free cash flow fell from a year earlier to $2.0 billion, according to that report, which attributed the decline to working capital. For a company whose Investment case leans heavily on cash generation from engine services, that line will draw scrutiny. On Thursday, though, investors focused on the guidance upgrade.

A sector divided

The rotation into industrials was one of the defining features of the day, but it was selective. Huntington Ingalls (NYSE:HII), Textron (NYSE:TXT) and L3Harris (NYSE:LHX) all rallied on strong results, putting defense and aerospace names among the session's notable winners.

Caterpillar (NYSE:CAT) was the glaring exception. The construction and Mining equipment giant had its worst day since March 2020 after an only modest earnings beat. Its record Backlog of about $78 billion was not enough to reassure investors worried that growth was slowing.

Industrials that could point to rising orders and higher guidance, as GE Aerospace could, were rewarded; those without that combination were not.

The cap-weighted indexes bend

The broad market's headline numbers masked what was happening underneath. The S&P 500 slipped 23.59 points to 7,720.39, its first decline in four sessions, while the Dow fell 132.54 points to 52,342.56 and the Nasdaq Composite lost 365.13 points to 26,184.72.

Alphabet (NASDAQ:GOOGL) bore much of the blame. The Google parent suffered its worst day since its 2004 IPO, wiping out about $500 billion of Market Value after a revenue miss, negative free cash flow and heavy capital spending revived fears about the cost of the AI buildout. One report said the results "reignited concerns over mounting AI costs."

Elsewhere, buyers were active. More than 400 S&P 500 stocks advanced, and the small-cap Russell 2000 rose 28.71 points to 2,859.22. "Money is rotating within the market rather than leaving it," one market strategist said, as quoted in market commentary.

Macro tailwinds and headwinds

The economic data offered support for cyclical companies. Third-quarter GDP grew faster than expected and accelerated from the second quarter, according to the government's advance estimate, with Business investment particularly strong. The 10-year Treasury Yield slipped back below the multi-decade highs it touched earlier in October.

Fuel costs remain a wildcard for GE's airline customers. Brent Crude settled at $114.88 a barrel on Thursday amid the conflict involving Iran, and jet fuel is one of the largest costs for airlines.

What to watch

Investors will monitor whether GE Aerospace's free cash flow rebounds as working-capital pressures ease, and whether commercial engine orders stay strong given elevated oil prices. Airline capacity plans and aircraft delivery schedules from manufacturers will remain key inputs for the company's aftermarket business.

More broadly, the question is whether the rotation into industrials and defense has staying power. With the Fed's December 8–9 meeting approaching and markets leaning toward another rate increase, cyclical stocks will be sensitive to any shift in growth or rate expectations.