Given how all the geopolitical uncertainty in March caused many sectors to underperform, it’s worth highlighting which sectors are not only still performing well, but in the midst of taking back ground they lost last month. One sector that is particularly worth keeping an eye on in this regard is the materials sector.
Key Takeaways:
- Despite a relatively weak March performance, many companies within the materials sector have already rebounded in April, indicating that the sector may warrant a closer look.
- Geopolitical disruptions may have worked against some parts of the materials sector, but it could actually benefit some specific areas, such as chemicals used for plastics and fertilizers.
- The State Street Materials Select SPDR ETF (XLB) has already seen hundreds of millions of dollars in net flows in April, highlighting the growing demand for targeted materials exposure.
Sure, the materials sector did not show much promise in March. The materials sector of the S&P 500 was down about 7% in March, due in part to the metals sell-off and the closure of the Strait of Hormuz.
However, while the sector initially struggled in March, materials stocks have quickly recovered since then. This is actually happening due to geopolitical factors that are now playing in favor of certain aspects of the materials sector.
Global Shortages Create New Opportunities
For instance, a menagerie of different chemicals companies are quite well-positioned right now. Many associate the closure of the Strait of Hormuz with gas prices and oil shipments, but other chemicals are affected too. As one example, the Middle East is a key exporter for ethylene, a chemical used to manufacture a variety of plastic-based goods. The Strait remaining closed for a prolonged instance has tightened supply of this key chemical, which likewise has amplified both demand and costs for alternatives in other countries like the United States.
Ethylene isn’t the only key chemical that is seeing supply constraints from a Middle East supply shock. The Middle East is also a major exporter of nitrogen and phosphate, and limited exports can directly work in favor of global competitors.
Meanwhile, there are still factors unrelated to the conflict that are working in favor of the materials sector. The AI buildout is ongoing, and many key metals are needed in order to construct the semiconductors that power AI infrastructure.
See More: Lithium ETF Rallies 91% on Battery Materials Recovery
XLB Gains Momentum as Materials Find Their Footing
The momentum that the materials sector is seeing can be illustrated by taking a look at the fund flows the State Street Materials Select SPDR ETF (XLB ) has already witnessed in April. Between April 1, 2026 and April 14, 2026, XLB has seen nearly $500 million in net flows.
Looking at XLB’s approach, it doesn’t come as a surprise that the fund is seeing such strong inflows. The fund provides focused exposure to the materials sector of the S&P 500 Index. Notably, as of April 15, 2026, about 51% of the fund’s industry allocations were tied to the chemicals industry. This allows investors to use XLB as a low-cost means to capitalize on the menagerie of opportunities within the different chemicals companies.
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