Download the Schwab app from iTunes®Get the AppClose

Materials Sector Rating: Underperform

What is the materials sector?

It includes companies that make or process chemicals, construction materials, glass, paper, forest products, packaging products, as well as metals, minerals and mining companies.

The Materials sector has been sensitive to fluctuations in the global economy, as well as concerns about the U.S.-China trading relationship. Although accommodative monetary and fiscal policies have boosted global economic growth, and recent trade agreements have eased some of trade uncertainty, the sector still faces significant challenges.

For example, still-tepid global growth is not expected to provide an enduring tailwind to industrial metals or demand for chemicals. Relative valuations and fundamentals remain poor. While revenue growth is expected to recover from a deep drawdown in 2019, only modest growth is expected over the next two years.

Earnings are expected to recover and grow moderately, boosting profit margins—however, wage costs are rising in the Materials sector, as we've seen skilled-labor shortages in certain segments of the market. Finally, relative strength in sector performance—both shorter and longer term—has dramatically lagged the broader market and other sectors, and we don’t see a catalyst to change this.

Sector Overview: Materials is negative on Fundamental and Relative Strength

Note: Each of the sector lenses shown above—Macroeconomic, Value, Fundamental and Relative Strength—is both intuitive and evidenced-based in nature. Within each, there are a varying number of factors. The Macroeconomic lens includes sector sensitivities to interest rates, stocks and the value of the U.S. dollar; the outlook for each of these is determined by the Schwab Center for Financial Research (SCFR)’s Asset Allocation Working Group, which uses a mosaic approach of quantitative and qualitative considerations. Value includes six different valuation metrics that provide a holistic perspective on current valuations relative to each of the sectors’ own historical valuations, as well as relative to the other sectors. Fundamental provides insight as to how efficiently the companies within each sector use invested capital to produce earnings; this historically has been informative as to future relative performance of the sectors. Finally, Relative Strength measures momentum of the individual sectors against all of the other sectors. We also consider the data in the context of factors outside the scope of these indicators—for example, geopolitical risk or anticipated tax legislation.   

Source: Charles Schwab, as of 01/23/2020.

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

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

 

What You Can Do Next

Information Technology Sector Rating: Marketperform
Financials Sector Rating: Outperform

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. Supporting documentation for any claims or statistical information is available upon request.

All expressions of opinion are subject to change without notice in reaction to shifting market or other 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.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see www.schwab.com/indexdefinitions.

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

Investing involves risk including loss of principal.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

(0120-0TFK)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.