The materials sector is an economically sensitive industry comprising companies involved in the exploration, mining, and processing of raw materials. Materials include companies that manufacture chemicals, produce building materials and paper products.
The subindustries include Metals and Mining (1.10T Mkt-cap), Chemicals (1.09T), Containers and Packaging (200.92B), Construction Materials (140.29B), and Paper and Forest Products (68.76B).
At a market-cap weighting of 3.72%, the sector is the third smallest of the major S&P 500 sectors. A minor overweighting allows for some outperformance within a balanced investment stock portfolio. However, XLB will not move the performance needle as much as the larger S&P 500 market-cap sectors such as Information Technology (24.57%), Consumer Discretionary (13.40%), Financials (12.79%), and Healthcare (12.18%).
Historically, the S&P materials sector (XLB) tends to outperform S&P peers during the early-cycle phase of an economic recovery/expansion on the expectations by investors for a firming of consumer and corporate spending. Selective S&P materials can also perform well during the late-cycle phase as the economic recovery/expansion matures and inflationary pressure rises.
In the past few weeks, the materials sector has improved. The Relative Rotation Graph (RRG) study shows XLB is close to moving into the Leading Quadrant from the Improving Quadrant. Relative momentum has slowed but is still trading just below 102. The relative strength against SPY is showing technical improvements as it nears 100. At the current pace, XLB can break 100 and enter the Leading Quadrant as early as January 2022.
On the price chart, XLB has surged above its May/Nov 2021 all-time highs at 87.99-89.72, confirming a technical breakout. Since the base is 6.39/11.86 points, this would imply technical projections at 96.11, near-term, and 101.5, intermediate-term.
In anticipation of XLB emerging as the next leadership sector the top 10 highest ranked Materials names by SCTR are CF (99.1), MOS (91.4), SHW (90.5), MLM (88.9), FCX (84.0), SEE (82.7), VMC (82.7), LIN (80.8), NUE (78.1), and ALB (74.0). The highlighted names denote relative strength leaders in the sector and offer attractive risk-reward profiles.
Materials names with sizeable or formidable technical bases but have not yet broken out are EMN (62.9), CE (62.7), ECL (62.4), and APD (53.5).
The current laggards or oversold names are IP (13.6), WRK (14.2), DOW (27.2), LYB (28.2), and PKG (35.4).