Energy and Material Sectors Are Susceptible to the Macro Environment



The energy and the material sector

The energy and material sectors are impacted first when it comes to China’s (YINN) economics, the US trade and GDP (gross domestic product) data, the demand and supply dynamics of oil, or the movement of the US dollar as against other currencies. These macroeconomic factors have a huge influence on the performances of the SPDR S&P 500 ETF’s (SPY) component sectors.

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Sectors’ relation to the macroeconomic factors

The above graph illustrates the performances of the Energy Select Sector SPDR ETF (XLE) and the Materials Select Sector SPDR ETF (XLB) with respect to the movements of the United States Oil (USO), the Direxion Daily FTSE China Bull 3X ETF (YINN), and the PowerShares DB US Dollar Bullish ETF (UUP) since August 2015.

As you can see in the graph, the ETFs’ price movement pattern are in tandem with each other. They only vary with respect to the extent of the rise and fall for each ETF. You can also see that the rise and fall in each of the ETFs coincides—they’re more evident for USO, XLE, and YINN. The material ETF also follows the same pattern, but subtly. XLB is partially influenced by YINN and the US dollar because the commodities are dollar denominated.

Mining companies’ stock, both precious metals and industrial metals, were affected on December 8 due to the Chinese customs data. The stock includes Newmont Mining (NEM), Freeport-Mcmoran (FCX), Nucor (NUE), Alcoa (AA), and Allegheny Technologies (ATI). They fell by 1.9%, 6.8%, 2.1%, 5.8%, and 5.0%, respectively, on December 8. Paper products and packaging companies’ stock, specifically International Paper (IP) and Avery Dennison (AVY), fell by 1.2% and 1.3%, respectively, on the day.

In the next part of this series, we’ll analyze the extent of the rise and fall of these stocks.


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