ETF Insights | December 1, 2024
Price Action & Performance
Using the XLB as a proxy for price action, the sector spent November consolidating price below September and October highs despite the S&P 500 registering a series of new all-time highs. Unsurprisingly, Materials Sector relative performance hit new 52-wk lows relative to the benchmark. A move above $96 for XLB would show improvement in the near-term, but with commodities prices continuing to move sideways despite the bull market, Materials stocks are likely to continue lagging.
At the industry level we continue to see a mixed bag. Metals and Mining and Chemicals stocks continue to lag while Containers & Packaging and Construction Materials stocks have gotten a boost from election results and the dovish pivot in Fed policy.
At the stock Chemicals names haven’t been able to sustain success through December, but we are still constructive on SHW and APD while we have upgraded ALB on near-term strength and a positive halo effect from EV’s. VMC and MLM are also buys in our work as our packaging co.’s SW, PKG and IP. Among mining co.’s STLD is our favorite at present.
Economic and Policy Drivers
In November and December, the U.S. materials sector was shaped by a mix of trade tensions, energy price volatility, and economic data. Trump’s proposed tariffs on China, Mexico, and Canada raised cost and supply chain concerns, though subsequent talks with Mexico suggested softer rhetoric. Positive U.S. economic data, including rising consumer spending and strong existing home sales, supported demand for construction and industrial materials, though a sharp decline in new home sales and weak durable goods orders signaled mixed trends.
Core PCE inflation remained stable at 2.8%, reinforcing expectations for a December rate cut, which could benefit materials companies. Rising energy cost, driven by colder weather and reduced production, added pressure for energy-intensive sectors like chemicals and steel. Infrastructure spending under the new administration and eased energy regulations offered long-term growth potential, while China’s mixed industrial activity and geopolitical risks, including tensions in Ukraine and the Middle East, added global uncertainties. Overall, the sector faced near-term headwinds, and we are looking for evidence of a softer interest rate environment and a pickup in lending to get more constructive on the sector.
In Conclusion
The Materials Sector continues to lag the S&P 500, and we aren’t seeing the salubrious effects of dovish interest rate policy that we had hoped. Commodities prices remain in the tank and interest rates have increased since the Fed began cutting its policy rate.
Our Elev8 model inputs rank Materials in the bottom 3 and assigns it a zero-weight position for October. Our Elev8 Sector Portfolio starts October with a -2.12% UNDERWEIGHT in Materials vs. the S&P 500 Index.
Chart | Materials Sector Technicals
- XLB 12-month, daily (200-day moving average | XLB Relative to SPX |14-day RSI | 12, 26, 9 MACD)
- XLB has shown signs of bullish reversal on price, but still lags the benchmark over the intermediate and longer-term timeframes.
- Overbought oscillators in a weak trend set the stage for near-term correction
XLB Relative Strength vs. S&P 500: Sector and Industry Level | Trailing 3-months
Data sourced from FactSet Research Systems Inc.
