Steel and aluminum stocks rallied after President Donald Trump announced proposed tariffs of 25 percent for steel and 10 percent for aluminum, even as the Dow Jones industrial average dipped by 420 points and market volatility increased.
The stocks of steel and aluminum companies globally faced a turbulent day and traded within a wide range after Trump announced that he would not seek tariffs, but later reversed his earlier decision.
Steel stocks rose during morning trading, dipped and rebounded in the afternoon with the majority of them closing with gains, although ArcelorMittal (ticker: MT) was down by 1.9 percent. Shares of U.S. Steel Corp. ( X) rose by 5.75 percent while AK Steel ( AKS) surged by 9.5 percent.
Century Aluminum Co. ( CENX) closed up at 7.5 percent, while Nucor Corp. ( NUE) saw gains of 3.2 percent and Reliance Steel & Aluminum Co. ( RS) increased by 3.8 percent. Other gains included companies Evraz (up 4.9 percent) and Gerdau ( GGB, up 4.6 percent) and Steel Dynamics ( STLD, up 4 percent).
[Read: 5 Reasons Donald Trump’s Presidency Will Include a Recession.]
Trump met with the titans of steel companies Thursday at the White House. The administration has been in discussions on imposing tariffs since 2017. Axios reported in June that Trump was “hell-bent” on levying tariffs on steel and other imports.
Manufacturing data released on Thursday was mixed. The Institute for Supply Management’s manufacturing index, which measures economic activity in the manufacturing sector, reached a 13-year high in February while U.S. construction spending was flat in January.
Investing in steel stocks. Tariffs do not work and instead “hurt because high prices lead to substitutes,” says Peter Borish, chief strategist with Quad Group, a New York-based asset management firm. “Buy the rumor, sell the fact.”
Investors should buy shares of steel and aluminum companies because the U.S. lacks adequate capacity to supply both commodities to this market, says Patrick Morris, CEO of NY-based Hagin Investment Management.
“Tariffs are a fool’s fame,” he says. “It is the retaliatory thoughts of a simple mind. Only an idiot thinks it’s a good idea to use tariffs to support an industry.”
Morris believes it is likely that after a month, Trump will reverse his decision again.
“I would give it 30 days of no action and assuming that like everything in this White House and nothing happens, I would buy,” he says.
Reaction to the news about the potential tariffs remained largely negative. Chicago brewer MillerCoors Brewing Co. ( TAP) says in a tweet that the company buys “as much domestic can sheet aluminum as is available,” and the current supply cannot satisfy the demands of American beverage makers.
The proposed tariffs will increase aluminum prices and “lead to job losses across the beer industry,” the company says on Twitter.
[See: 7 of the Best Stocks to Buy for 2018.]
Investors should consider the impetus for the higher prices, said Shawn Cruz, senior market strategist at TD Ameritrade, an Omaha, Nebraska-based brokerage firm.
“Many of the names moving higher on [Thursday’s] news have been on the move since mid-February when the Commerce department announced its intentions to impose tariffs on steel and aluminum imports,” he said. “If the decision to invest in steel companies is based off of this piece of news, it may already be priced in.”
Investors should be aware of the risks incurred from not just purchasing a specific commodity, but also the ones related to the individual company. Companies like US Steel, Nucor and ArcelorMittal are the largest steelmakers producing in the U.S., but the difference is that ArcelorMittal is headquartered in Luxembourg while US Steel and Nucor are based in the U.S.
“While these may all seem like interesting plays on the steel move, the tariff news today pushed US Steel and Nucor higher while ArcelorMittal moved lower,” Cruz said. “This highlights the importance of knowing what you’re investing in when selecting individual securities.”
Investing with ETFs. Another strategy that investors can adopt is by buying exchange-traded products, an ETF like the Metals and Mining ETF ( XME), which can provide investors “exposure to the industry without exposing them to the risk associated with any single company,” Cruz says.
The trade war is just beginning and investing in any steel stock is a good strategy, says K.C. Ma, director of the Roland George investments program at Stetson University in DeLand, Florida.
“Steel prices will only go higher from here,” he says.
This move from the administration will likely invite retaliatory measures from foreign countries, “raising the prospect of a trade war between the U.S. and several other steel-producing countries such as China,” Ma says.
The tariffs will only translate into “higher costs” for consumers and U.S. businesses, including homebuilders, said Randy Noel, chairman of the National Association of Home Builders, a trade group. Homebuilders are already facing a 20 percent tariff on Canadian softwood lumber while the price of lumber and other key building materials are near record highs, he says.
[See: 9 Ways to Invest Under President Donald Trump.]
“Tariffs hurt consumers and harm housing affordability,” Noel says.
The tariffs are a tax on American families, said Matthew Shay, CEO of the National Retail Federation.
“When costs of raw materials like steel and aluminum are artificially driven up, all Americans ultimately foot the bill in the form of higher prices for everything from canned goods to automobiles,” he said. “The reality is that there is nothing this country will gain from such a one-sided policy. These tariffs threaten to destroy more U.S. jobs than they will create while sending an alarming signal to our trading partners and diminishing markets for American-made products overseas.”
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Aluminum, Steel Stocks Rally originally appeared on usnews.com
