The Vanguard Materials Index Fund ETF Shares ETF’s (NYSEARCA:VAW) has seen a more than 10% year-to-date surge, indicating a strong performance by materials stocks in 2023. However, a deeper analysis reveals that performance within the sector is varied, with different factors influencing market dynamics. This suggests that a careful examination is necessary before investing in material stocks for 2024.
While sector-based analysis is typically top-down, the diverse nature of the materials sector requires a bottom-up approach. Here are three key factors that may impact the materials sector in 2024:
1. The Interest Rate Cycle: Valuation plays a crucial role in determining the prospects of any asset. State Street’s research report from November found that the materials sector is undervalued compared to the S&P 500, based on superior price-to-book and price-to-sales ratios. This undervaluation is also evident when looking at the sector from a price-to-book perspective. With lower cost bases and reduced company-specific discount rates, materials stocks could see a rebound in book values in 2024.
In conclusion, the materials sector’s valuation multiples are well-supported by fundamental resilience. While risks such as a potential recession and geopolitical tensions should be considered, the overall outlook for materials stocks is positive. With these market dynamics in play, a bullish stance on the sector for 2024 seems justified.
Disclaimer: The opinions expressed in this article are those of the writer, and the writer does not hold any positions in the securities mentioned. Steve Booyens, co-founder of Pearl Gray Equity and Research, has a background in finance and investment banking and has contributed articles to various financial websites.
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