The materials sector, one of the strongest performers in the U.S. stock market this year, has become one of the worst-hit sectors since the outbreak of the Middle East conflict, as soaring oil prices have driven up industrial production costs. Data shows that companies including PPG Industries (PPG.US), Smurfit Westrock (SW.US), International Paper (IP.US), and Vulcan Materials (VMC.US) have each seen their stock prices fall by at least 16% since the close on February 27. This has dragged down the S&P 500 Materials Index, composed of 26 constituents, which has fallen by 10% over this period. Following the Middle East conflict, only four stocks within the index have avoided declines. Before the conflict began, only one of these stocks had fallen since the start of 2026.

Record-high metal prices, robust fourth-quarter earnings, and expectations for a recovery in chemical demand had driven the materials sector higher early in 2026. The recent weakness in the sector stems from disruptions in the Strait of Hormuz, which have pushed crude oil prices up by as much as 50%, to nearly $110 per barrel. Oil is a key input for many materials companies.

Michael O'Rourke, Chief Market Strategist at independent broker-dealer JonesTrading, stated, "Rising oil prices will create inflationary pressure or margin pressure for companies that use oil, petroleum products, and even those involved in construction and building." Scott Helfstein, Head of Investment Strategy at Global X, noted that rising crude prices are also a reason for consumers and businesses to cut spending. He said, "Given that higher oil prices could dampen consumer demand and business investment, investors are questioning whether demand for materials will remain strong."

The materials sector has been the worst-performing group in the S&P 500 since the Middle East conflict began. Meanwhile, metal stocks have also retreated during the conflict, following record gains last year. After surging 168% in 2025, shares of gold miner Newmont Corporation (NEM.US) have fallen 18% since the war started. While metals and mining stocks typically perform well during geopolitical conflicts, the significant prior gains led to a pullback this time, and a stronger U.S. dollar has also put pressure on metal prices. O'Rourke commented that precious metals "experienced a speculative run earlier in the year, which diluted their safe-haven characteristics," adding, "In that scenario, they are trading more like risk assets."

However, some stocks within the materials sector have risen during the Middle East conflict. Petrochemical and fertilizer companies, such as LyondellBasell (LYB.US), Dow Inc. (DOW.US), and CF Industries Holdings (CF.US), have gained more than 20% since the conflict began, as constrained supplies from Middle Eastern peers are expected to boost demand and prices for North American producers.

Despite the war-induced pullback, investors have not entirely abandoned the materials sector—it remains up about 6% year-to-date in 2026. Although the price-to-earnings ratio for the materials index has retreated from its peak at the start of the year, earnings expectations for the next 12 months have changed little. O'Rourke noted, "The market is still looking ahead, expecting the U.S. to gain an advantage and anticipating that oil prices will retreat. But the longer this situation persists, the more market confidence will erode."