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Why CLF and U.S. Steel Were Part of Market Bloodbath Yesterday

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Bloodbath on Wall Street

The US equity markets saw nothing short of carnage on June 25 as concerns of trade war escalation took hold. Conflicting signals came from the Trump administration regarding plans to restrict foreign investment in US technology companies. This along with news that the recent tariffs have started to hit businesses’ supply chains sent the stocks spiraling down. The Dow Industrials Average Index (DIA) (DOW) and the S&P 500 Index (SPY) (SPX) closed down 1.3% and 1.4%, respectively. The tech-heavy NASDAQ composite (QQQ), on the other hand, fell harder by 2.1%.

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US steel stocks and CLF plunge

Cleveland-Cliffs (CLF) stock plunged 6.7% yesterday due to rising risks from trade war concerns. Other US steel stocks were not too far behind. AK Steel (AKS), US Steel (X), Nucor (NUE), and Steel Dynamics (STLD) fell 6.7%, 6.5%, 4.1%, and 2.9%, respectively. The plunge in US steel stocks and the largest iron ore pellet supplier might seem counterintuitive given the fact that these are the same tariffs that are supporting higher US steel prices, which are helping these companies’ earnings as well as stock prices in 2018.

Are interests of steel sector compromised?

The fact of the matter, however, is that to an extent, the imposition of restrictions would stop the inflow of subsidized imports from countries, which would help these companies. An escalation of trade tariffs and the tit-for-tat tariffs now announced by many countries including Canada, the European Union (or EU), and Canada might run counter to the interests of the domestic steel sector.

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