To The Moon

$S&P 500(. $S&P 500(.SPX)$ )$ $Materials Select Sector SPDR Fund( $Materials Select Sector SPDR Fund(XLB)$ )$ $Dow Inc.( $DOWNER EDI LTD(DOW.AU)$ )$ $Freeport-McMoRan Inc.( $Freeport-McMoRan(FCX)$ )$ $Albemarle Corporation( $Albion Resources Limited(ALB.AU)$ )$

The stock market continues to navigate turbulent waters as of April 21, 2025, at 10:44 PM PDT, with the S&P 500 closing at 5,158, down 2% for the day and reflecting a 14% year-to-date decline from its February high. While much attention has been on tech and financials, the materials sector is quietly taking a significant hit, driven by President Trump’s tariff policies and a weakening USD (below 98). The Materials Select Sector SPDR Fund (XLB) has slumped 18% YTD, making it one of the worst-performing sectors. Let’s unpack the dynamics, spotlight key players, and explore trading strategies in this challenging environment.

Tariffs Take a Toll on Materials

The materials sector, heavily reliant on global trade and commodity prices, is feeling the brunt of Trump’s trade war. Despite a 90-day tariff pause announced earlier this month, the existing 10% tariffs on imports—combined with uncertainty over future trade negotiations—have disrupted supply chains and raised costs. Key factors impacting the sector include:

• Commodity Price Volatility: The USD Index (DXY) dropping below 98 has made U.S. exports cheaper but increased import costs for raw materials. Copper prices, a bellwether for industrial demand, have fallen 5% this month to $4.10 per pound, pressuring companies like Freeport-McMoRan (FCX).

• Slowing Global Demand: The Fed’s Beige Book highlighted a cooling economy, with recession odds at 45% for 2025. China, a major consumer of industrial materials, reported a 3% drop in manufacturing activity in March, further dampening demand for chemicals and metals.

• Lithium Glut: Lithium prices have crashed 20% YTD due to oversupply, hitting Albemarle (ALB) hard as EV demand weakens amid economic uncertainty.

Sentiment on X is bearish, with users noting the sector’s vulnerability to trade tensions and some predicting further declines if tariffs escalate again. However, a few contrarians see a potential bottom forming, citing oversold conditions.

Materials Sector Breakdown: Key Players Under Pressure

Here’s a table of key materials stocks and broader indices as of April 21, 2025:

• Dow Inc.’s Struggles: DOW is down 15% YTD, hit by weaker demand for chemicals and plastics as manufacturing slows globally.

• Freeport-McMoRan’s Challenges: FCX has slumped 20% YTD, with copper prices reflecting fears of a global slowdown, particularly in China.

• Albemarle’s Lithium Woes: ALB is down 25% YTD, as the lithium market faces oversupply and Tesla’s reported 13% drop in Q1 deliveries signals weaker EV demand.

Visualizing Materials’ Decline:

The graph shows the materials sector underperforming the broader market, with a steeper decline driven by tariff and demand headwinds.

Bull vs. Bear: Can Materials Find a Floor?

Bull Case

• Oversold Opportunity: XLB’s RSI (Relative Strength Index) is at 28, signaling oversold conditions. A short-term bounce to $80 could be in play if trade talks improve.

• Tariff Relief: Progress in U.S.-South Korea trade negotiations (highlighted by South Korea’s acting president today) could ease supply chain pressures, benefiting materials stocks.

• USD Weakness: A weaker dollar might eventually boost export demand for U.S. materials, particularly if global growth stabilizes.

Bear Case

• Demand Weakness: Slowing global growth, especially in China, could keep commodity prices under pressure, dragging FCX and DOW lower.

• Tariff Risks: If the 90-day tariff pause ends without a deal, renewed trade tensions could exacerbate cost pressures, potentially pushing XLB to $70.

• EV Slowdown: Continued weakness in EV demand (e.g., Tesla’s 13% delivery drop) could further depress lithium prices, hitting ALB hard.

My Take: The materials sector is in a tough spot, with global demand and tariffs creating significant headwinds. I expect XLB to test $74 this week, but a bounce could materialize if trade talks yield positive news. Long-term, the sector’s recovery hinges on global growth—watch China’s manufacturing data closely.

Trading Strategy: Play the Oversold Bounce

• XLB: Buy at $76, stop at $74, target $80. The sector looks oversold, but downside risks remain—keep a tight stop.

• FCX: Enter at $40, stop at $38, aim for $43. Copper’s decline may be overdone, offering a short-term trade.

• Hedge: Buy SDS at $35, stop at $33, target $40, to profit if the S&P 500 breaks below 5,000 amid broader market weakness.

My Plan: I’m allocating 30% to XLB, 20% to FCX, and 20% to SDS as a hedge, with 30% in cash to buy dips if the sector finds a bottom.

Risks to Watch

• Trade Negotiations: A breakdown in U.S.-South Korea talks could reignite tariff fears, hitting materials hard.

• Global Demand: Further weakness in China’s manufacturing data (due April 30) could deepen the sector’s slump.

• Macro Pressures: A hawkish Fed (70% chance of a May rate hike) and recession fears could amplify selling pressure across markets.

Your Play?

The materials sector is battered, but oversold conditions hint at a potential bounce. Are you buying XLB’s dip, playing FCX for a copper rebound, or hedging with SDS? Share your strategies below—let’s navigate this rough patch together!

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📝 Disclaimer: This post is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.

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