Due to their close ties with the commodities market, materials stocks and ETFs are susceptible to cyclical demand and volatility in raw material and energy prices. While the sector’s sensitivity to business cycles can expose investors to greater risks, the area may also offer attractive returns during periods of strong growth.
The wall between the U.S. and Mexican border has been one of Trump’s key promises during his presidential campaign trail. The president has also promised to increase spending on construction, including $1 trillion into infrastructure. Trump’s plans to raise a wall across the Mexican border and other spending policies could fuel demand for cement, concrete and crushed stone.
With the economy recovery maturing, the materials sector, which is closely tied to the prices of raw materials, have traditionally done well as inflation rises and late-cycle economic expansions help support demand.
“So far this year, the sector’s leaders have been Freeport-McMoRan, CF Industries and Sherwin-Williams, rising 20 percent, 14 percent and 13 percent, respectively. A popular materials exchange-traded fund, the XLB, has risen 12 percent since the U.S. election and 6.5 percent this year,” reports CNBC.
For more information on the materials sector, visit our materials category.