There is nothing new in Wall Street. … Whatever happens in the stock market today has happened before and will happen again. – Jesse Livermore, “Reminiscences of a Stock Operator”
There is nothing new in Wall Street. … Whatever happens in the stock market today has happened before and will happen again.
Relative prices reveal market extremes more clearly than absolute prices. One of the most extreme ratios today is that of the S&P 500 Index IT sector to the materials sector, now near levels seen only at rare moments over the past several decades. The ratio reflects a decadelong shift in capital toward asset-light growth and away from capital-intensive physical production.
Over the past 10 years, the S&P 500 IT sector returned approximately 882%, or about 25.7% annualized. Over the same period, the materials sector returned roughly 219%, about 12.3% annually. Today, IT represents roughly one-third of the S&P 500, well above its long-term average near 18%. Materials, by contrast, accounts for just over 2%, below its historical average near 3% and far from a mid-1990s peak of nearly 8%.
The IT sector is priced as long-duration earnings built on intangible value while materials pricing reflects cyclicality, capital intensity and dependence on physical inputs such as energy, metals and industrial production. The gap shows how markets price digital growth relative to physical supply.
Across all Global Industry Classification Standard (GICS) Level 1 sector pairings over the past 10 years, IT versus materials ranks sixth out of 55 by relative performance, placing it among the most extreme sector gaps. At this scale, further divergence offers little upside and far more risk on reversal. The chart highlights this risk.
Early price action shows the first signs of narrowing. Year-to-date, the materials sector has gained approximately 14% while IT has declined about 1%. Materials cannot remain indefinitely marginalized. Physical inputs remain foundational to economic activity, from infrastructure and industrial production to energy systems and supply chains, all constrained by material availability. The expansion of digital infrastructure has not reduced this dependence. It has amplified it, as data centers and energy systems remain materially intensive, even when their outputs appear intangible.
For investors, the issue is structural rather than tactical. Extreme relative price relationships concentrate portfolios and reinforce one-sided exposure. Periods of dominant leadership often feel permanent, even when they are not. The IT-materials ratio shows a strong divergence built over many years and a market beginning to respond.
Extremes mark moments when the gap between financial prices and physical constraints becomes difficult to sustain. Markets have historically closed that distance.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
