The Materials sector has been sensitive to fluctuations in the U.S.-China trading relationship, as well as concerns about slowing global economic growth.
On the positive side, the U.S. economy is still growing, China is attempting to stimulate its economy, and some indebted foreign governments have scaled back their austerity plans and are focusing more closely on generating economic growth. The Federal Reserve and European Central Bank have moved toward easier monetary policy, which could help to support commodities demand.
However, Chinese economic growth has slowed compared to the past several years and infrastructure investment is lagging after years of overbuilding. Chinese demand for processed commodities also might be slowing as technological advances and a build-out of production facilities allow the country to produce more of its own materials. For example, China recently transitioned from being a net importer to a net exporter of steel. Reports of large inventory levels in China could dampen hopes for a sharp rebound, as it could take time to work through those stockpiles.
Meanwhile, wage costs are rising in the materials sector, as we've seen skilled-labor shortages in certain segments of the market. If ongoing trade disputes escalate, the globally involved materials sector could be hurt. As a result, for now, we're holding to our marketperform rating.
What do the ratings mean?
The sectors we analyze are from the widely recognized Global Industry Classification Standard (GICS®) groupings. After a review of risks and opportunities, we give each stock sector one of the following ratings:
- Outperform: likely to perform better than the broader stock market*
- Underperform: likely to perform worse than the broader stock market
- Marketperform: likely to track the broader stock market
Want to learn more about a specific sector? Click on a link below for more information or visit Schwab Sector Views to see how they compare. Clients can log in to see our top-rated stocks in the Materials sector.
* As represented by the S&P 500 index
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