Here's Why Illinois Tool Works Stock Lost Ground in March

Illinois Tool Works (NYSE: ITW) investors must be feeling frustrated by events in 2026. The U.S. manufacturing sector has been in a slowdown over the last couple of years, and as soon as it starts to recover, along comes a major conflict in the Persian Gulf to muddy the waters. The uncertainty created by the conflict took its toll on the stock in March, with the stock declining by 10.4% according to data from S&P Global Market Intelligence, but its underlying growth prospects look good.

A recovery in the industrial sector

After 10 months of contraction, the U.S. manufacturing sector has reported growth in every month this year, at least according to the Institute for Supply Management's (ISM) Purchasing Managers Index (PMI). Not only is the overall PMI in positive territory, but the new orders index is too.

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That's usually good news for a multi-industry industrial like Illinois Tool Works, whose mix of end markets (automotive, food equipment, test and measurement equipment, welding equipment, polymers/fluids, construction, and specialty products) gives it broad based exposiure to the industrial economy.

A combination of the tariff actions initiated in 2025 and the lingering impact of an inventory overhang built up previously during the supply chain crisis has pressured the industrial sector over the last year, but the inevitable bounce appears to be in place in 2026. However, the conflict in the Persian Gulf threatens to overshadow matters.

How the conflict impacts Illinois Tool Works

The company's exposure is a combination of direct and indirect impacts. The direct impacts are reflected in input costs for polymers and specialty products. Meanwhile, the indirect impacts come from the soaring price of gasoline, which is affecting auto sales (the company is an automotive original equipment manufacturer supplier), as well as the possibility of supply chain disruptions.

In addition, inflationary pressures are coming from massive spikes in commodity prices, including crude oil, liquefied natural gas (LNG), fertilizer, and others, which could keep interest rates higher for longer -- not good news for cyclical sectors of the economy.

Analyst downgrades

The greater level of uncertainity isn't lost on Wall Street, and analysts at Barclays and Wells Fargo both reduced their price targets on the stock by $25 to $250 and $245, respectively. Both targets are below the current price of about $259.

All told, it's a disappointing development, and investors in Illinois Tool Works are hoping the conflict is definitively resolved soon, before the uncertainty turns into a tangible slowdown in an industrial sector that was just about to build momentum.

Wells Fargo is an advertising partner of Motley Fool Money. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Barclays Plc and Illinois Tool Works. The Motley Fool has a disclosure policy.