Some businesses will never become household names… yet they are huge parts of making the goods we love.

For example, several companies make materials for the iPhone. But we only give credit to Apple (AAPL) when we think of the revolutionary device.

Importantly, these companies are happy to operate out of the spotlight. That’s because they can earn big profits just by making materials. And in the right environment, they can soar. What we’re seeing today highlights that…

The materials sector recently rallied nine days in a row. And a 16% gain is possible in this sector after this setup.

Let me explain…

We’ve written it dozens of times in DailyWealth… But when it comes to investing, the trend is your friend.

Investments that are going up tend to keep going up. That might seem too simple. But if you spend any time studying history, you’ll see how true it is.

One way to spot strong trends is to look for strings of consecutive up-days. These breakout moves often signal an acceleration in the current trend.

If you can spot them in real time, they can lead to solid outperformance in the months that follow. That’s exactly what’s possible in the Materials Select Sector SPDR Fund (XLB) right now.

XLB holds a basket of companies that profit from making materials. That includes chemicals, packaging, mining, building materials, and more. Essentially, these companies produce everything that helps make the finished goods we buy at the store.

XLB is staging a breakout right now. The fund rallied nine days in a row last month. Take a look…

XLB is taking off again after falling from mid-May into late July. You can see the breakout in the chart above.

Since 1998, breakouts like these have been a bullish sign for investors. History shows that major outperformance is likely over the next year. Check it out…

The materials sector has been a decent performer for more than two decades… returning 6% per year. That’s a decent gain, but it’s not much to write home about.

But buying after a setup like today’s is much more exciting…

Similar cases have led to 3% gains in three months, 7% gains in six months, and a solid 16% gain over the next year. That crushes a simple buy-and-hold strategy.

In short, this is a sector you might overlook in normal times. But after today’s setup, history shows that ignoring materials would be a mistake.

It’s true that materials stocks aren’t household names. And they might be a surprising place to expect a 16% gain in today’s market. But the trend is in place. And history says shares of XLB are a smart bet because of it.

Good investing,

— Chris Igou

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Marc Chaikin built the system that isolated NVDA before it became the best-performing stock of 2023. Click here to get his latest buy. More here.

Source: Daily Wealth