Yesterday's brutal correction among coal and steel stocks blindsided investors just as strong supply/demand fundamentals and strategic acquisitions of coal assets were stoking interest in these sectors.
As Fools have come to expect based on prior observations of gold and silver, corrections within long-term secular bull markets can come very suddenly and strike surprisingly deeply. Without so much as a warning shot, coal equities shot downward Wednesday by double-digit percentages. Patriot Coal
Days like this highlight how crucial it is to maintain a Foolishly long-term view when investing according to guiding macroeconomic trends. Nothing changed overnight Tuesday to salve the global shortfall of coal, and no indications came to light regarding a revision of the expectations for growing demand for either coal or steel from emerging markets. Therefore, I continue to believe a long-term bull market for coal remains fully intact.
Coal companies were not yesterday's sole victims. Shares of steel producers were also hammered, even though cheaper coal would ostensibly bolster their margins. Schnitzer Steel
While it may be tempting to assign all sorts of significance to various aspects of yesterday's sell-off, the Foolish bottom line is that a correction in coal was due after some unbelievable gains so far this year. Industry insiders have voiced expectations for supply deficits in coal lasting through 2010. I believe coal mining shares are likely to rebound fairly swiftly, and I think the long-term outlook both for coal and vertically integrated steelmakers remains as bright as a fireworks display.