Materials Advance on Broad Breadth as Mining Shares Lag

The Materials Select Sector SPDR Fund (XLB), an exchange-traded fund that represents the sector, closed +0.5% on Tuesday, October 20. Breadth across the group was unusually wide, with 70.8% of sector members advancing during the session. Equal-weighted performance across the sector reached +0.7%, ahead of the cap-weighted sector move of +0.3%, signaling that smaller constituents did much of the heavy lifting. CRH PLC led the gainers with a move of +2.4%, while Freeport-McMoran Copper & Gold Inc weighed on the group at -1.2%. Yet beneath that broad advance, EasyAlpha finds that only 37.9% of the fund's graded weight sits in companies graded A or B. The session saw most U.S. stocks rise following earnings reports. At the same time, crude oil prices retreated, though our sources show no sector-specific catalyst driving materials.

Across the broader market, 9 of the 11 sectors rose as investors focused on healthcare and value stocks. Among individual materials constituents, Dow Inc finished +2.1%, though our sources show no company-specific announcement for the stock during the session.

Mining and metals producers did not share in that momentum. In commodities trading, copper slipped as exchange inventories edged higher. On the day, Freeport-McMoran Copper & Gold Inc closed -1.2%, ranking as the sector's steepest decliner. Because the sector's equal-weighted return ran ahead of its cap-weighted move, smaller constituents delivered more of the day's gain than the largest members of the fund.

While the fund is +3.0% over the past month, longer horizons reflect prolonged structural pressure on materials producers. The fund stands -1.2% over the past six months and is -42.4% over the past twelve months, with a return of +0.1% over the past 100 sessions.

EasyAlpha grades every company in the sector against its industry peers. Companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. Across the fund, the majority of graded assets sits in companies graded C, D, or E.