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Materials Sector Rating: Neutral

The Materials sector includes chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products.

The Materials sector is sensitive to fluctuations in the global economy, the U.S. dollar, and inflationary pressures. Accommodative monetary and fiscal policies are underpinning global economic growth and pricing power. However, the U.S. dollar has trended higher recently, which historically is a headwind for the sector.

The sector’s cyclical-value characteristics—which tend to do well amid improving global growth and strong demand for industrial metals—have been a tailwind. Although metal prices remain elevated amid strong demand coupled with supply constraints, economic growth is at risk of easing amid peaking U.S. growth and weaker demand in China. The Biden administration’s clean energy and infrastructure initiatives could sustain the boom for industrial metals and materials—though tougher regulations are a risk. And demand for chemicals (the largest industry in the sector) may continue to increase as oil demand improves—but oil rig counts have been slow to rise. Furthermore, high energy prices are a headwind to chemical production profitability. Finally, the recent rise in agricultural commodity prices may have run its course.

Positives for the sector:

  • Improving global economic growth has supported industrial metals and chemical prices—though appears to be moderating somewhat amid slowing economic growth in China
  • Cyclical-value sector characteristics tend to be favored in the expansion phase of the business cycle
  • U.S. clean-energy and infrastructure spending could spur demand for industrial materials. 
  • Recent sector performance weakness has improved valuations

Negatives for the sector:

  • The slow recovery in the oil rig count is a headwind for oil-fracking chemicals, and high energy prices have raised the cost of chemical production.
  • Relative momentum has been weak recently
  • Significant supply chain bottlenecks may be constraining economic growth 

Risks for the sector:

  • An increase in global COVID-19 cases
  • Potential stringent environmental regulations
  • Strong rally in the U.S. dollar and/or weaker than expected economic growth

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*
  • Neutral: no current view on likely relative performance

 

* As represented by the S&P 500 index

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.

Communication Services Health Care
Consumer Discretionary Industrials
Consumer Staples Information Technology
Energy Real Estate
Financials Utilities

 

What You Can Do Next

Important Disclosures

Schwab Sector Views do not represent a personalized recommendation of a particular investment strategy to you. You should not buy or sell an investment without first considering whether it is appropriate for you and your portfolio. Additionally, you should review and consider any recent market news.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.

Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

 

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

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