Materials Sector Struggles in 2024 – Could 2025 Mark a Turnaround?

Materials Sector Struggles in 2024 – Could 2025 Mark a Turnaround?

The materials sector has been the worst-performing area of the S&P 500 in 2024, down 0.6% year-to-date compared to the index's 24% gain. This underperformance is the widest margin since 1998, with materials stocks lagging behind tech-heavy sectors like communication services and information technology, which surged 40% and 37.5%, respectively.

Materials stocks, tied to industries like metals, chemicals, and construction, are highly cyclical, often swayed by economic conditions. In 2024, the sector faced challenges from a slowing U.S. economy, China's economic struggles, and globally elevated interest rates. Concerns about demand for raw materials weighed heavily, though the Federal Reserve’s recent shift toward easing monetary policy and China's promises of economic stimulus hint at potential relief.

Some analysts see reasons for optimism. Jonathan Krinsky of BTIG highlights that the sector appears "oversold," with the Materials Select Sector SPDR Fund's (XLB) RSI hitting its lowest point since 2018. Historically, such oversold conditions have often led to rebounds, with the XLB posting an average 5.54% gain 15 days after similar RSI readings.

Looking ahead to 2025, the materials sector's performance will likely mirror trends in the global economy. With falling interest rates and China's stimulus measures, Fidelity's Ashley Fernandes sees potential for a "new cycle of growth" in this cyclical sector. Could this set the stage for a strong rebound in the year ahead?