With President Donald Trump proposing a 25% tariff on imported steel and a 10% tariff on imported aluminum, you would think that shares of United States Steel Corporation (X) would be surging. After all, the tariffs could mean more business coming its way.
However, it turns out that the "modest bullish" response to President Trump's comments last week could be because the good news is already baked into the stock, not to mention that it is still unclear if the tariffs will actually happen. That’s according to a new analysis by E*TRADE, which said that shares of U.S. Steel had already had a "dramatic" run higher on Feb. 16, when the Commerce Department called for the tariffs, citing national security.
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"The stock has essentially moved sideways since that announcement, forming a trading range bound by roughly $42.50 on the downside and $47 on the upside – the upper boundary having been penetrated on an intraday basis by the March 1 intraday high," wrote E*TRADE Financial Corporation (ETFC) in a blog post. "While the immediate bullish response by domestic steel and aluminum stocks to the news that their industry would be getting an economic assist from the government may be understandable, the congested trading of U.S. Steel shares suggests this story's ending is very much up in the air."
One important consideration is whether the tariffs will actually happen. According to the New York-based brokerage, it's not clear if the tariffs will become policy, given most economists think measures of that nature harm the economy, lots of lawmakers are against it and Gary Cohn, director of President Trump's National Economic Council, resigned as a result of the proposal.
What's more, E*TRADE said that lots of market observers think the move was aimed at stopping China from dumping cheap steel on the U.S., but most of the imported steel comes from Canada. China is the source for around 2.9% of U.S. steel imports, said E*TRADE. "There's the possibility that the White House actually has no intention of enacting trade tariffs (at least not as broadly or punitively as it has suggested), but is simply using tough talk as leverage in trade negotiations in general," argued the discount brokerage. "Both of these points would seem to cast some doubt on the prospect of a sustained steel stock rally – a prospect that may also be evident in the recent 'indecision' in U.S. Steel's price action."
Either way, tariffs or no tariffs, the online brokerage said that a breakout in U.S. Steel shares has the potential to be a strong move, at least in the short term.