Federal rate hike
The uncertainty over the long-awaited federal interest rate hike finally ended when the Federal Reserve raised rates by 25 basis points on December 14, 2016.
Although the move was widely expected, we saw a broad-based sell-off in the markets. The sell-off could be attributed to the Fed’s hawkish tone about future rate increases.
According to the above dot plot, the Fed sees three interest rate hikes next year, while the previous dot plot implied two rate hikes in 2017.
While metal and mining shares witnessed selling pressures after the rate hike news came out, steel stocks actually closed with gains on December 14.
Steel stocks (XME) have been on a joyride since Donald Trump won the US election. We saw a sharp rise in steel stocks, including U.S. Steel Corporation (X), AK Steel (AKS), Nucor (NUE), and ArcelorMittal (MT), after the election.
The market’s reaction to the election results wasn’t really surprising given Trump’s stance on curbing imports and boosting US manufacturing. Read Weighing Trump’s Mettle: Will He be a Game Changer for US Steel? to find out what a Trump presidency could mean for steel stocks.
In this series, we’ll see what a rate hike could mean for US steelmakers. We’ll analyze whether steel stocks have run ahead of their fundamentals amid the Trump rally. We’ll also look at the recent trend in steel prices and analyze the various factors that are driving steel prices.
Let’s begin by analyzing how the rate hike could impact US steelmakers next year.