With US president-elect Donald Trump’s governing priorities slowly starting to take shape, the US steel industry emerged on Monday as one sector where investors are placing their bullish bets.
Three companies — US Steel, AK Steel and iron-ore producer Cliffs Natural Resources — saw their stock ratings upgraded by Morgan Stanley analysts in the wake of last week’s election, pushing their share prices up.
Mr Trump’s election has made, for the first time in a decade, “a credible long-term investment case for steel equities”, Evan Kurtz, Morgan Stanley analyst, said in a note on Monday.
Mr Trump has vowed to spend $550bn on infrastructure projects designed to rev up the economy and create jobs, including bridges, highways and buildings. Such projects could boost steel demand by 22m tons each year the programme is in effect, translating to a 20 per cent annual rise for five years, Mr Kurtz said.
Another potential boon for the sector is Mr Trump’s protectionist stance on trade, which could help ease some of the pressure US steel producers have faced from cheap exports, particularly those from Asia. One likely advocate of such efforts is Dan DiMicco, a former chief executive of steel company Nucor, who serves as Mr Trump’s senior trade adviser.
It is still unclear what exactly Mr Trump will do within his first weeks of taking office in January, but given that stimulus spending via infrastructure upgrades and fair trade both received some degree of bipartisan support during the campaign season, it is likely those could be “early in the queue”, according to Mr Kurtz.
AK Steel shares rose 10.4 per cent on Monday to $8.28 following the upgrade. US Steel was up 8.1 per cent to $27.78, while Cliffs Natural Resources gained 3.4 per cent to close the day at $7.65.
Another big mover on Monday was fashion retailer Kate Spade, which saw its shares climb 7.9 per cent to $17.93, after New York-based hedge fund Caerus Investors sent a letter urging its board to consider a sale. Caerus said it was “deeply concerned” by the decline in the company’s share price over the past two and a half years, which it blamed on “management’s inability to meet their own stated goals”.
Kate Spade, best known for handbags and colourful graphic prints, has seen its stock price fall 6.5 per cent this year, after a 44.5 decline last year, amid challenging headwinds for retailers facing online competition and slowing tourist spending driven by a stronger US dollar.
The letter also stated that Caerus had become “increasingly frustrated by management’s inability to achieve profit margins comparable to industry peers”, a week after Kate Spade said its profit margin slid to 59.4 per cent, from 61.2 per cent in the year ago quarter.
After their post-election surge last week, US stocks were largely flat on Monday. The Dow Jones Industrial Average, which reached two all-time highs last week, nudged up 0.1 per cent to 18,868, while the S&P 500 was barely moved at 2,164 and the tech-heavy Nasdaq Composite decreased 0.4 per cent at 5,218.
The US dollar index, which tracks the greenback against a basket of its peers, was hovering around the 100 mark on Monday, while gold fell to a five-month low during the trading day.