Market Insights

Stocks like chemical makers and gold miners have struggled for much of the year, but now they’re ripping amid hopes of Federal Reserve rate cuts.

The SPDR Materials ETF (XLB) is up almost 8 percent since Friday, putting it on pace for its best week since December 2011. The fund includes a hodgepodge of industrial-gas companies, packaging firms and crushed-stone providers.

XLB often follows the Fed because commodities are priced in U.S. dollars. Lower interest rates in the U.S. tend depress the greenback and boost commodity prices. This week has seen a shift in that direction by key central bankers like Jerome Powell and Richard Clarida.

There are other stories aside from monetary policy. The biggest name in the sector, DowDuPont, just split into three new stocks. Companies like International Fragrances (IFF) and Sherwin Williams (SHW) have assured investors about growth — despite worries of a slowing economy.

Other companies like Westrock (WRK) and International Paper (IP) have benefited from news that Georgia-Pacific will shut a competing mill in Arkansas. There’s also been a trend of steady buying in Vulcan Materials (VMC) and Martin Marietta Materials (MLM) as investors position for more highway construction.

Members of the XLB Fund

Here are the five biggest holdings in XLB:

1. Linde (LIN): The world’s biggest supplier of industrial gases has been reaping synergies after acquiring the U.S. company Praxair in 2018
2. DuPont (DD): One of the three companies resulting from the breakup of DowDuPont, DD’s brands include Kevlar for the military and Tyvek house wrap.
3. Ecolab (ECL): A major provider of cleaning and water-purification products for industrial customers.
4. Air Products & Chemicals (APD): Industrial gases.
5. Dow (DOW): The second part of the old DowDuPont is mostly a plastics company. Its products are used in a wide range of industrial and consumer applications.

By the way, the third company spun off from DowDuPont is fertilizer maker Corteva (CTVA). It’s the 11th biggest holding in XLB.

The fund only holds one gold producer, Newmont Mining (NEM), which is up 10 percent in the last week. Clients interested in the space may also want to look at the Market Vectors Gold Miners ETF (GDX), which has rallied even more sharply thanks to the dovish Fed.

In conclusion, materials stocks have been some of the worst performers in the last year as investors priced in a weaker global economy and a stronger dollar. But in recent sessions price action has been sharply bullish and the news flow has been more positive.

This post is part of our regular “ETF of the week” series. It focuses on exchange-traded funds with interesting news or price changes.