US equity markets had their best first quarter since 1998. Previously, the markets fell sharply in the fourth quarter. The metals and mining space slightly outperformed the S&P 500 in the first quarter. The SPDR S&P Metals and Mining ETF (XME) saw an upward price action of 13.9% in the first quarter, while the S&P 500 (SPY) rose 13.1%.
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Looking at steel stocks’ price action in the first quarter, AK Steel (AKS) outperformed other US steel stocks and rose 22.2%. Like last year, Cleveland-Cliffs (CLF), which supplies iron ore to some US steel companies, continued to outperform steel stocks. Cleveland Cliffs saw an upward price action of 30.7% in the first quarter. Last year, Cleveland Cliffs managed to close in the green even though steel stocks saw massive losses. Nucor (NUE) and Steel Dynamics (STLD) rose 13.4% and 18.2%, respectively, in the first quarter. What really worked in steel stocks’ favor in the first quarter?
First, the recovery in broader markets supported steel stocks. There was a slight recovery in US steel prices as the first quarter drew to a close. Last year, US steel prices fell sharply in the fourth quarter after rising in the first half of the year. Globally, steel prices received support from higher iron ore prices. Seaborne iron ore prices rose sharply in the first quarter after issues at Vale’s (VALE) Brazil operations.
From a valuation standpoint, US steel stocks were clearly oversold in the fourth quarter.