Considering its impact on the stock market as a whole late last week, you would think President Trump’s proposed tariffs on steel and aluminum imports would have been a major boost for U.S. steel stocks. And for a few hours, they were. But the rally proved fleeting, and steel stocks are back stuck in neutral while investors wait to see what happens next.
Trump announced the tariffs, which would impose 25% tariffs on steel imports and 10% tariffs on aluminum imports, last Thursday. It was certainly music to the ears of companies such as U.S. Steel (X), Nucor Corp. (NUE) and Steel Dynamics (STLD), U.S. steel makers that have struggled to grow amid increasing overseas competition from steel makers in places like China, who sell their steel on U.S. soil for much cheaper prices. And while those steel stocks did get a nice boost on Thursday and early Friday, the rallies quickly fizzled. None of them were up as much as half a percentage point on Monday.
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Why such a small rally for a seemingly large announcement? It may have something to do with how most other stocks have behaved since Trump’s surprise tariffs unveiling. The Dow has lost more than 500 points in less than three trading sessions, a clear sign that investors don’t like what imposing a tax on all foreign steel and aluminum shipments could do to trade. Some feel it could stunt America’s economic growth over the long haul.
Another reason the rally in U.S. steel stocks has stalled is because there has often been a huge gulf between what Trump proposes and what actually happens. Trump has vowed to sign the sweeping trade measures later this week. Until investors see pen to paper, they’re in believe-it-when-we-see-it mode with steel stocks.
If Trump does follow through, U.S. steel stocks could be a decent momentum play. All three of the stocks mentioned above currently trade above their 50-day moving averages, with U.S. Steel looking particularly bullish, up 31% in the last month. AK Steel Holding (AKS), an Ohio-based steel maker, isn’t far behind, up more than 20% in the last month. Even before Trump’s tariff announcement, these stocks were trending in the right direction. Mike Cintolo has recommended Steel Dynamics twice since the start of the year in his weekly Cabot Top Ten Trader advisory, which features the market’s best momentum stocks. If imposed, the tariffs could be the thing to extend the rally in steel stocks for another few months, if not longer.
That said, the market is telling you to wait. If Trump doesn’t follow through later this week or eases up on his initial proposal, U.S. steel stocks could actually go the other way. For now, I’d wait and see as other investors seem to be doing.
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