Why economy and politics drove Walter Energy up in November


Dec. 4 2020, Updated 10:53 a.m. ET

A Republican victory

In this year’s midterms, Republicans seized control of the U.S. Senate from Democrats after eight years. With a clear majority in the Senate, Republicans now control Congress, as they already had a majority in the House of Representatives. Republicans oppose the U.S. Environmental Protection Agency’s (or EPA) new regulations requiring coal-fired power plants to reduce carbon emissions. While Walter Energy (WLT) doesn’t produce a significant amount of thermal coal, a Republican victory took its stock up by 9.1%, to $2.74, on November 5, 2014. Other coal stocks also went up.

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U.S. economy  back on track

After years of sluggish recovery, the U.S. economy seems to be back on track. The economy grew by a good 3.9% in the third quarter. The unemployment rate has also dropped to 5.9%. The Fed has ended its asset purchase program, signaling improvement in the economy. Car sales and housing indicators are also showing positive trends. As a result, the outlook for U.S. steel production remains upbeat, according to World Steel Association.

Stock performance in November

Overall, Walter Energy’s stock gained 27.7% in November. That month, the company outperformed its peers in the VanEck Vectors-Coal exchange-traded fund (or ETF) (KOL), including Alpha Natural Resources (ANR) (6.1% gain), Arch Coal (ACI) (1.8% gain), and Peabody Energy (BTU) (2.3% drop). Since Walter Energy (WLT) is a pure-play met coal producer, a positive outlook for the U.S. steel industry had the greatest positive impact on the stock.

The rally in November is not meant to continue. Why has Walter Energy’s stock dropped 44% in just 4 days? Let’s check on that in the next part.


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