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Materials Stock Market Sector Breaks Out

The stock market continues to do well. Surprisingly, the concerning stock market signs we noticed a couple of weeks ago did not materialize in any meaningful weakness. We still tend to believe that a sharp correction is in the cards but the time for that to happen during the weak months September till November is drying up.

In the meantime the materials sector is performing quite well. In fact its relative strength has broken out recently. When compared to the S&P 500 the materials sector (XLB) is in a relative rise now.

The chart below represents the materials sector XLB against the S&P 500.

Note, however, that 24% of the XLB ETF is DowDuPont, symbol DWDP. The stock rose 10 percent in recent days. It definitely has influenced the strong performance of XLB as well as the relative strength of the sector against the S&P 500.

We remain cautious on stocks and the materials sector given these seasonally weak months but also realize that weakness has not materialized yet and that the safe haven trade is weakening.

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