Trading Nation

Why it could get even worse for materials stocks

Trading Nation: Materials hit
Trading Nation: Materials hit

Materials stocks led the way down Tuesday in a marketwide selloff, losing as much as 2.5 percent during trading.

The sector has been one of the hardest hit by the collapse of commodities prices, tumbling 15 percent year to date. After news that the Asian Development Bank cut its economic forecasts due to concerns about China and India, commodities such as silver and copper plunged more than 3 percent Tuesday.

And one trader says that the concerns surrounding materials are far from overblown.

"The market is looking 18 months forward, maybe even 24 months forward and they're really not seeing anything exciting there," Boris Schlossberg of BK Asset Management said Tuesday on CNBC's "Power Lunch."

Even given this year's selloff, Schlossberg said troubles will persist as the Chinese economy changes.

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"China is in the middle of a transition from an industrial to a consumer-based economy. So the massive boom you saw in Chinese building is really going to be over," he said.

Among the materials stocks, some are doing far worse than others, Stacey Gilbert of Susquehanna said Tuesday.

Gilbert, head of derivative strategy, said the materials sector ETF, XLB, is currently pricing in a lower premium for options protection than it has in the past. She attributes the lack of concern to the diversity of stock performance within the sector.

"There's not this significant fear in materials. But I think the important part of why those are a little bit cheaper on a relative basis is because of that correlation," Gilbert said on "Power Lunch. "How well these stocks are going to move together is at one of its lowest levels that we've seen."

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Among the worst performers in the sector were Mosaic and Newmont Mining, falling 7 percent and 6 percent Tuesday, respectively.

But Gilbert said Freeport McMoRan, which rose incrementally Tuesday, is one name that the market is more divided on, seeing both bullish and bearish bets in options activity.

"You've got a little bit of everything going on," Gilbert said. "It's becoming more subsector specific and we can't just broad-base materials and say what's going on."

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