The stock market gave up ground on Thursday, sending major market benchmarks down less than a third of a percent. Markets had been down much more sharply earlier in the day, with the S&P 500 (^GSPC -0.54%) falling by nearly a full percentage point in mid-morning trading. But as we've seen on numerous occasions recently, investors clawed their way back toward the unchanged level and managed to cut losses significantly.
Nevertheless, some stocks weren't as lucky, and Fiat Chrysler Automobiles (FCAU), AK Steel (AKS), and Vista Outdoor (VSTO 0.87%) were among the worst performers on the day. Below, we'll look more closely at these stocks to tell you why they did so poorly.
Image source: Fiat Chrysler.
Fiat Chrysler deals with diesel controversy
Fiat Chrysler Automobiles fell more than 10% after the U.S. Environmental Protection Agency charged the automaker of violating rules related to emission-testing requirements. Specifically, the EPA said that it believes that Fiat illegally used software that permitted its diesel vehicles to have emissions in excess of allowed levels without warning of the practice.
Given that this sounds quite familiar to the controversy that rocked rival automaker Volkswagen, investors didn't hesitate to sell first and ask questions later. CEO Sergio Marchionne vigorously defended his company, arguing that its software complies with regulations and criticizing EPA handling of the situation that suggested any intent on Fiat Chrysler's part to defraud the agency intentionally. Depending on how the incoming Trump administration handles the episode, it's possible that multi-billion dollar fines could cost Fiat Chrysler considerably.
AK Steel gets hit with a downgrade
AK Steel also dropped 10% in the wake of a stock downgrade by analysts at Credit Suisse. Both AK Steel and several of its steelmaking peers have seen huge share-price increases in the past several months, led higher, in large part, by calls for greater spending on infrastructure and construction going forward. Yet Credit Suisse believes that the bull run has gone too far, and cut its rating on AK Steel from outperform to neutral.
The analysts think that rising supply among competitors, weak demand from customers, and possible price declines in the industry will combine to hurt AK Steel going forward. Given the stock's gains, AK Steel will have to realize considerable growth in order to justify its current valuation. Until uncertainty clears up about just how big a potential infrastructure-spending initiative might be, AK Steel investors will have to balance the possibility of future gains against the risk of weaker future performance than expected.
Vista Outdoor misfires
Finally, Vista Outdoor plunged 22%. The maker of outdoor sports and recreational products warned that it expects to take an asset-impairment charge for its fiscal third quarter, tied to the value of its hunting and shooting accessories reporting unit. Vista cited increased promotional activity and a weaker retail environment, generally, for the decision to begin the asset-impairment process.
The company tried to reassure investors that the rest of its business would likely not be affected, saying that it found no issues in the outdoor-recreation or sports-protection divisions, and expects to find none in its shooting-sports and ammunition and firearms reporting units. Nevertheless, with preliminary analysis expecting a charge of $400 million to $450 million, Vista investors fear that the tough retail conditions could persist well beyond its regular earnings call on Feb. 9.
