What happened

Shares of Nucor (NUE 0.25%), one of the largest and most diversified steelmakers in North America, rallied 18% in January according to data provided by S&P Global Market Intelligence. That gain was actually toward the low end of results within the U.S. steel group, which saw massive upturns across the board.

A man standing in front of molten steel being poured

Image source: Getty Images

ArcelorMittal (MT -1.05%), which has a global business, was the laggard, with a monthly advance of "just" 13% or so. At the high end was AK Steel Holding (AKS), which rose a dramatic 31%. Steel Dynamics (STLD 0.63%) and United States Steel (X -0.80%) came in close together, at 21% and 23%, respectively.

It was clearly a very good month for steelmakers in with U.S. exposure.

Check out the latest U.S. Steel, Steel Dynamics, AK Steel, and Nucor earnings call transcripts.

So what

The interesting thing about January, though, was that it represented a massive reversal from December. In that month, which closed out a relatively weak 2018, steel stock prices fell by double-digit percentages across the board. There were plenty of reasons for that drop, including fears about over-expansion within the U.S. steel industry and, more broadly, about slowing U.S. economic growth. The biggest factor, however, was probably that investor sentiment turned decidedly negative across the board at the end of the year.

NUE Chart

NUE data by YCharts

But those fears seemed to dissipate in January, as investors quickly shifted back into a buying mood. The S&P 500 Index, for example, rose around 8% for the month. That said, the steelmakers started to report earnings in late January, and their preview comments about how good the results would be began showing up much earlier.

Nucor, for example, provided strong fourth-quarter and full-year guidance in mid-December. That gave investors something to look forward to once broad market sentiment shifted in a positive direction in January. When the giant steelmaker finally reported in late January, it turned out that 2018 had been a record-setting year. Earnings topped its previous annual record -- set in 2008 -- by a massive 28%. 

AK Steel, which had the largest stock price improvement in the group, also reported in late January. It posted a year over year earnings gain of more than 80%. That was a great showing for the heavily leveraged mill, and marked its second consecutive year of profits after a long stretch of red ink. And, like Nucor, it provided a generally upbeat outlook for 2019. That said, neither company expects this year to be quite as good for it as 2018 was.   

Steel Dynamics' results were also record setting. It notched new high water marks for steel shipments, net income, cash flow from operations, and EBITDA. While company executives didn't give a specific outlook for 2019 earnings, they echoed the positive view of the U.S. steel industry shared by Nucor and AK Steel. U.S. Steel, meanwhile, more than doubled its earnings year over year in Q4 and for the full year. Although it only provided guidance for Q1 2019, it offered a generally positive outlook with regard to the U.S. market. However the company's European exposure could be a headwind, and a fire at one of its Pittsburgh facilities in late December will also hit the bottom line.   

NUE Chart

NUE data by YCharts

ArcelorMittal is the only steel maker here that didn't report earnings in January. Although there was no company-specific news driving the  13% advance in its stock price, it's a good bet, based on its peers' results, that it too will report a solid showing overall. That said, ArcelorMittal is really a global steel maker, so conditions in other markets will impact its performance. Indeed, the tariffs that the Trump administration put on imported steel in 2018 have caused a bit of dislocation in global steel markets. Because of that, ArcelorMittal's final 2018 results will likely be the most interesting of the group, though perhaps not the most positive.

Now what

Financially speaking, 2018 was an incredible year for U.S. steelmakers. This year should be a pretty good one, too. That said, investors shouldn't read too much into the recent stock price turnaround. There are still some issues on the horizon with which this highly cyclical business must contend, most notably a possible serious slowdown in economic growth.

As long as the economy remains strong, the steelmakers will produce solid top- and bottom-line numbers. But those growth periods can only last for so long, which helps explain why all of these stocks are actually down from where they stood a year ago. Short-term thinking is driving the day right now, but eventually, the longer view will likely begin to dominate again. Unfortunately, record-setting results aren't likely to repeat, and if U.S. growth stalls, so too will U.S. steelmakers' earnings. Investors considering opening a position in one of these copmanies should probably wait for the next downturn, rather than jumping aboard today as we approach the end of a long period of economic expansion.