Materials sector

Ashley Fernandes is portfolio manager of Fidelity Advisor^® Materials Fund.

Stocks in the materials sector advanced in 2025 but notably lagged the broad-based S&P 500^® index. The sector’s sluggish relative performance was due to both broad macroeconomic and sector-specific factors. Materials is a highly cyclical sector—that is, its performance tends to track closely with that of the larger economy. It is also among the most sensitive to the interest-rate environment. In early 2025, materials stocks were held back by uncertainty about shifting U.S. trade policy and persistently high consumer inflation, along with the U.S. Federal Reserve’s decision to pause its monetary easing campaign for much of the year after cutting rates three times in 2024. The sector gained some momentum by late spring and summer as concerns about a potential trade war subsided and the Fed signaled that it might resume cutting its policy interest rate later in the year, which it eventually did.

Year-to-date price return

Apart from these developments, supply and demand vary widely for different materials markets and often are the primary driver of investment outcomes. Let’s look at how those dynamics influenced performance in 2025, and what they may mean for the sector in 2026.

2025: Wide disparity among industry segments

The materials sector encompasses industries such as chemical producers (including makers of fertilizer and industrial chemicals), metals producers (including gold and copper miners, and steel manufacturers), makers of construction materials (such as cement, bricks, glass, and gravel), and producers of wood-based goods (such as lumber and paper packaging).

The environment for metals and construction stocks in 2025 has been constructive, whereas chemical producers have been plagued by stagnant demand and overcapacity. Among the latter, specialty chemicals and industrial gases—the two largest segments, at about 24% and 21% of total assets, respectively, in the sector benchmark, the MSCI U.S. IMI Materials 25/50 Index—have lost modest ground year to date, while the smaller commodity chemicals group has been especially hard hit, hurt by high inventory amid weakening industrial activity.

In contrast, precious metals such as gold and silver have led all other materials segments. Building-related metals such as steel and copper have also meaningfully advanced, as have construction materials, which was helped by the improving interest-rate backdrop in the second half of 2025.
​

Industry performance in the materials sector

2026: Stock and industry selection will be key

The U.S. macroeconomic outlook for 2026 remains uncertain, with positive indicators, including strong corporate earnings and consumer spending, set against less-positive signals, mainly persistently high inflation and a softening job market.

Though the macro picture is cloudy, I believe several materials subindustries are well-positioned for growth. I continue to be bullish on the long-term prospects for copper, an industry where supply is increasingly constrained while demand continues to grow. Among copper-intensive segments, electric-vehicle growth has slowed in the U.S. but accelerated in China; growth for renewable energy sources has continued, albeit at a slower pace than I expected; and the build-out of electric-power capacity for AI-capable data centers is a significant new source of demand. The copper market is often subject to near-term volatility, but I believe the long-term trend is inexorably upward.

Elsewhere, I think some recently beleaguered chemicals stocks could be in line for a rebound. Specifically, investors have begun to recognize the growth potential for certain specialty chemicals firms that are supporting the massive effort to build AI-related hardware and infrastructure as quickly as possible. In addition, I think valuations for commodity chemicals equities have fallen to a point where there is the potential for recovery as market dynamics change. In each of these areas, careful stock selection will be key to success.

Among precious metals, I am somewhat cautious about gold—as I believe the huge recent growth may be unsustainable—but I think silver could have some more room to run. The latter has made a slow transition to being viewed more like gold as a store of value, while at the same time, industrial demand for the metal has risen. Silver is a very small sector component, but its profile is rising and merits consideration as a modest portfolio position.

Conviction in select copper, specialty chemical and gold producers

Among copper producers, the largest position in Fidelity Advisor^® Materials Fund is Canada-headquartered First Quantum Minerals. The stock has rebounded strongly since Panama’s government unexpectedly shut down the company’s top copper-mining operation in late 2023. First Quantum has increased production at its other copper facilities, and has been helped by high prices for gold, which it mines at its site in Zambia. Though the stock’s valuation has become a bit high, I think if the company continues to grow production and improve its financial position, it could do very well in a supply-constrained copper market.

Within specialty chemicals, Florida-based Element Solutions, another fund holding, is one of the firms that has established a strong place in the AI-development chain. The company’s electronics division recently posted its sixth consecutive quarter of organic growth, driven by demand from data centers and semiconductor manufacturers, and the firm’s financial guidance reflects confidence for sustained growth in this area.

Lastly, for exposure to gold and other precious metals, I favor the model offered by certain streaming and royalty firms. Though several mining companies have had a strong run the past couple of years, gold mining remains a difficult and expensive enterprise. Royalty companies, in contrast, provide upfront financing to mining firms and then purchase the mined metals at a predetermined price. With this model, they are able to exert an enviable amount of control over operating risk and revenue. Notable fund holdings in this area include Wheaton Precious Metals and Altius Minerals.

A sharp focus on supply and demand

While the economic backdrop will always play a role in the trajectory of stocks in the materials sector, in managing the fund I am focused squarely on supply and demand for the individual commodities that are represented in the sector. Then, I choose companies that, in my view, have a strong balance sheet and low political risk. This approach remains consistent through all broad-market conditions.