2026 has been completely dominated by two major investment themes.
The first is the explosion in AI infrastructure spending that sent tech stocks to the stars – quite literally in the case of the SpaceX (SPCX) IPO. The State Street Technology Select Sector SPDR ETF (XLK) is up a monster 33% year to date (YTD), absolutely crushing the S&P 500 Index’s 10% return.
The second , of course, was the war in Iran that sent energy stocks soaring. Even after the recent pullback, the State Street Energy Select Sector SPDR ETF (XLE) is up a solid 24% YTD.
But the third-best-performing sector has flown largely under the radar.
The State Street Materials Select Sector SPDR ETF (XLB) is up nearly 16% in 2026 and – as I discussed yesterday – was the top-performing sector last week. That’s no coincidence.
The outperformance in materials goes hand in hand with the technology boom. Keep in mind, the buildout of America’s AI infrastructure is incredibly resource intensive, so the need for raw materials is accelerating.
The question is whether there are any good opportunities ripe for the picking.
Let’s see what my system says.
The sector may be trending higher, but my system is recommending caution.
Only six of the 26 materials sector stocks rate “Bullish,” meaning a score of 60 or higher out of 100. (For those new to my Green Zone Power Ratings system, “Bullish” rated stocks outperform the S&P 500 by double on average over the following year.)
Another eight rate as “Neutral,” meaning my system would expect them to perform more or less in line with the broader market. And at 12, close to half rate as “Bearish.”
This tells me that it pays to be selective.
Let’s keep digging to uncover potential hidden gems.
Where Do Materials Pick Up Points?
The Green Zone Power Rating system is a composite score based on six primary factors: momentum, size, volatility, value, quality and growth, each of which is composed of several sub-factors. (As we are looking at large-cap constituents of the S&P 500, I don’t consider size when doing the sector X-ray.)
Let’s take a look to see where materials stocks pick up points.
The single most “Bullish” factor is quality, which is a little counterintuitive.
My quality factor tends to reward “capital light” businesses that throw off a lot of cash with minimum investment in physical property, plant and equipment. Materials are notoriously “capital heavy.”
You can’t run a mine or a steel mill on your kitchen table with a borrowed laptop.
The strong quality factor here is due to profitability. These companies are really enjoying bumper profits due to the AI building boom, which more than compensates for the asset heaviness.
But more than that, AI has changed the game. As I wrote last week:
Claude or ChatGPT might blow up the business model of a software company, but they can’t pump natural gas into a pipeline or crude oil into a tanker. Over the past 30 years, Wall Street has shown a clear preference for low-capital businesses. I think it’s highly likely we’re in the early stages of a major revaluation that sees investors put a premium on physical “stuff.”
It’s still early. I expect the bull market in physical “stuff” is just beginning.
Highest-Momentum Materials
As I mentioned earlier, materials stocks are trending higher. Let’s drill down and focus on the specific stocks that are outperforming the strongest. Below, I ranked materials stocks by their momentum factor, limiting the criteria to those rated “Bullish” on the factor.
A few names should look familiar to my Green Zone Fortunes subscribers. I recommended Albemarle (ALB) back in April as a way to profit from Elon Musk’s aggressive push into industrial-grade battery packs for data centers.
I also recommended leading fertilizer maker CF Industries Holdings (CF) at the end of February. The Iran war has led to some volatility in the stock, but the bullish megatrend remains in place.
The AI revolution will create an explosion of wealth. And in every historical case of a society becoming wealthier, meat consumption has risen.
Raising livestock for meat requires vastly more grain production than a vegetarian diet. So, demand for fertilizer only has one direction to go.
The correlation between wealth and a high-protein diet is perfect. Once the dust settles from the war, I expect CF to resume trending higher.
I recommended Newmont (NEM) in November 2025, and we’re up about 23%. I expect a lot more to come.
Little by little, the world’s central banks are diversifying out of the dollar and other paper currencies and stockpiling gold. It’s only a matter of time before Wall Street and regular mom-and-pop investors follow suit.
To good profits,
Adam O’Dell
Editor, What My System Says Today
