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Could Battered Steel Stocks Witness a Santa Claus Rally?

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Dec. 4 2018, Published 11:44 a.m. ET

Possible rally

US steel stocks are having a dismal year. U.S. Steel Corporation (X) and AK Steel (AKS) have lost 34% and 46% based on their closing prices on November 30. Nucor (NUE) and ArcelorMittal have also seen negative price action in 2018. Cleveland-Cliffs (CLF) has been an exception in the steel and iron ore space. Cleveland-Cliffs stock has risen 28.7% year-to-date.

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Section 232 tariffs

Originally, 2018 was expected to be a strong year for steel stocks after President Trump imposed a 25% tariff on steel imports. Nucor and Steel Dynamics posted record earnings in the second and third quarter amid higher margins. Steel companies have used their excess cash to reward shareholders in the form of dividends and buybacks. There have also been organic growth investments and inorganic growth pursuits. Despite steel companies employing every trick in the book, investors haven’t flocked to steel stocks. There has been a selling spree in steel stocks. Most steel stocks are underperforming broader markets (SPY).

Sometimes, stocks see a rally in the last week of December. The phenomenon is known as the “Santa Claus rally.” In this series, we’ll explore whether steel stocks are set for a Santa Claus rally in 2018.

Next, we’ll discuss what has been driving the recent sell-off in steel stocks.

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