Industry returns, market returns and economic fundamentals: Evidence for the United States

•Many industry portfolios offer significant explanatory power for many of the predictors of economic activity and some of them provide valuable information to the stock market•Certain major industries emerge as recurrent information leaders for other industries•Stock market shocks affect many industries' returns and the shock was absorbed within a short period of time•Industries behave differently to shocks from the stock market both within and across different bull and bear markets•An implication of the results is that it would be more efficient and less costly for firms to exploit leader industry returns rather than large firms when seeking own price setting guidance

Seventeen industry returns, the stock market and several fundamental variables are simultaneously examined for the United States from 1957 to 2013. The results point to significant explanatory power of industry returns to many predictors of economic activity including the stock market. Detailed analyses of the industries - stock market returns linkages revealed that certain industries (Oil and Financials) provided consistent information leadership to other industries. Finally, when examining the industries' returns behavior during expansions/bull markets and contractions/bear markets, it was discovered that there are no consistent response patterns across and within each expansion/bull or contraction/bear market.