E Can The Spectacular Rally In Steel And Iron Ore Continue?

There is much market speculation these days in the mainstream press about whether or not the rally in  U.S. stocks can continue, although the rally so far in 2016 is nothing to write home about. The S&P 500 (SPY) is up 4%, along with the Russell 2000 (IYM). The Dow Jones is doing a little better up around 5% (DIA), while Nasdaq is unchanged on the year.  It is quite amazing so much attention is given to these investing areas with their puny returns, especially when there have been spectacular profits being made elsewhere in other country’s markets and in certain industry groups during the same time.  

Much Ado About Very Little: 2016 Rally in U.S. Stock Indexes

Stocks of companies with steel and iron ore operations are toward the top of list in providing investors with the best returns in the first four months of this year (gold, silver and other non-ferrous metal mining stocks are usually close competition). Steel stocks (SLX) overall are up 50% this year. As good as this is, those with both iron ore and steel operations have done much better. Cliff Natural Resources (CLF), which has iron ore mines and pellet plants, was up over 175% at one point. U.S. Steel (X), which is an integrated iron ore and steel operation was up almost 150%. Gerdau S.A. (GGB) was up a mere 100% at its peak price and ArcelorMittal (MT), also an integrated steel producer like U.S. Steel was up only a little over 75%. In the chart below SLX is the black line, X is the bronze line, CLF is the blue line, GBB is the red line, and MT is the orange line.

Steel and Iron Ore Stocks So Far in 2016

The frothy rally in iron ore and steel is puzzling considering the global industrial sector, while doing OK, isn’t doing nearly well enough to justify it. On the U.S. markets, the materials sector (XLB) is up around 10% and the industrial sector (XLI) is up around 8% this year, hardly justifying steel and iron ore stocks with 75% to 175% rallies.  As is frequently the case with unusual market activity, the source seems to originate in China.

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