Materials and industrials rally creates investor opportunities

For much of the market’s recent attention, artificial intelligence has dominated the conversation. But a less noticed corner of the market has also been moving higher: materials. The sector has been strengthening alongside industrials, and that combination may matter to investors who are watching for signs of broader economic momentum.

Materials are the second-smallest market sector after real estate, but they play a central role in the economy. The group supplies the raw inputs industrial companies need to make goods, process products, build structures, pave roads, construct bridges and package finished items. That includes lumber, concrete, steel, industrial chemicals, metals, glass and paper products.

The sector’s performance this year has followed a clear pattern. After struggling last fall, materials surged in December 2025 and kept climbing through January and February. In March, the sector moved lower with the broader market as the Iran war affected sentiment. It recovered in April, then spent much of the spring moving sideways before another pickup in June. During the second week of June, the sector gained 3%.

As of June 24, materials had outperformed the S&P 500 by more than 5% year to date. One simple way investors can access the area is through the State Street Materials Select Sector SPDR ETF, known as XLB. The fund has outpaced the ETF tied to the S&P 500 in 2026, with gains of 13.7% compared with 8.1% for the large-company benchmark fund from the same provider.

The sector’s gains have come even though some analysts have remained cautious. Morningstar at one point described materials as 20% overvalued, although that assessment was later lowered to 3%. At the same time, the sector has offered dividend yields above the S&P 500 average, and some materials ETFs have annual payouts approaching 2%. That means investors have been getting income along with price appreciation.

The article links this strength to the idea of a “Roaring 2020s,” a long-standing market thesis associated with economist Ed Yardeni. The comparison is drawn from the “Roaring 1920s,” when broad market growth and industrial expansion helped define the era. In that view, materials and industrials are closely connected. When industrial companies see trouble ahead, they often reduce materials orders and draw down inventories. For that reason, weakness in materials can act as a warning sign for industrial demand.

The same relationship also leads to a portfolio rule of thumb: if an investor is selling materials to reduce risk, the industrials sector may deserve similar attention. The article notes that some materials companies also have wide moats, meaning new competitors face major barriers to entry. Starting a new steel company today, for example, would be extremely difficult because of regulatory and other hurdles.

Not everyone sees the sector the same way. Analysts including CFRA have recommended underweighting materials, pointing to tariffs and other constraints. Yardeni and others take the opposite view, favoring overweight positions on the idea that industrial consumption will keep rising if the broader growth outlook holds.

Copper is one of the areas where both sides of the debate appear to agree. CFRA has a strong buy rating on First Quantum Minerals, a copper miner, and recently raised its 2026 copper price forecast. The firm cited growing demand from AI data centers, modernization of the electrical grid and the spread of electric vehicles. As demand eats into the available above-ground supply, some analysts expect a near-term shortage.

Copper’s reputation as “Dr. Copper” reflects its role as a bellwether for industrial activity and economic growth. Rare-earth elements are another important area. These 17 elements have properties that make them useful in defense infrastructure, including precision-guided missiles and stealth aerospace technology. CFRA has a strong buy rating on MP Materials of Nevada, which the article describes as the only fully integrated rare-earth producer on American soil.

The piece notes that rare-earth deposits exist in Greenland and Canada and may also be present in parts of the American West that have not yet been fully identified. Most production, however, comes from China. That concentration creates strategic concern and strengthens the argument for more exploration in the U.S. and allied nations to reduce reliance on Chinese imports.

Chemicals also make up a large part of the materials sector. They account for about half of the holdings in U.S. large-cap materials ETFs, though the products involved can be complicated. Industrial gases are another major segment. These gases are used in manufacturing, including semiconductor production, which is important to AI development. One major producer is Linde PLC, a U.K.-domiciled company that has long been a leading holding in materials ETFs such as XLB.

The article advises caution with leveraged or derivative-based funds that try to amplify returns. Those products can magnify losses when markets turn lower. Instead, it highlights three materials ETFs without those features.

The first is State Street Materials Select Sector SPDR, or XLB. The fund was up nearly 20% over the previous 12 months and is weighted by market capitalization. That means roughly one-third of its top 10 holdings are metals miners. Still, the fund covers a broad range of materials companies, not just metals.

The second is VanEck Rare Earth and Strategic Metals, known as REMX. The fund had traded sideways in recent months, but a strong finish to 2025 and quick gains early this year left it with a 12-month gain of nearly 138%. It was up about 30% year to date as of June 22. Because of the nature of the industry, the fund includes some Chinese companies, along with some Latin American names, and tracks firms that mine uranium, tungsten, titanium and lithium.

The third is Global X Copper Miners, or COPX. This fund gives investors a more direct way to focus on copper while limiting exposure to gold, which has become a larger factor in many other metals funds because of its sharp recent gains. COPX was up about 20% this year and had gained 99% over the previous 12 months.

The article also points to several individual stocks that performed well in tests for downside risk and had favorable projected growth. Ecovyst Inc., a supplier of sulfuric-acid products and services, was up about 30% this year and had projected annual growth averaging 38% over the next five years. Reliance Inc., a metals processor whose products include aluminum, brass, copper, carbon steel, stainless steel and titanium, had risen 39% this year and carried projected five-year annual growth of 17%.

Eastman Chemical Co. was another name mentioned. The company, founded by George Eastman and once part of the Eastman Kodak corporate structure before spinning off in 1994, had projected annual growth of 12.4%. It also led the low-risk group in annual dividends, with a yield of about 4.8%, which the article says is better than many investment-grade bonds.

On the surface, materials stocks may not seem exciting, and they are not the kind of names that usually dominate conversation. But the article argues that understanding the sector matters because industrial companies depend on the products materials firms supply. For investors looking beyond the AI trade, materials and industrials may offer another way to think about market leadership.