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Why Shares of Alcoa Plunged 24.7% Today

By Travis Hoium - Mar 18, 2020 at 5:07PM

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A recession wouldn't be good for this aluminum producer.

What happened 

Shares of aluminum producer Alcoa (AA) dropped a whopping 24.7% today, as investors sold off nearly every segment of the market. At the market's close, shares were down 18.1% on the day. 

So what

The impact of the coronavirus is hitting a broader range of companies on the market beyond entertainment and travel, and metals suppliers aren't being spared. The worry today is that Alcoa could be hit by a broad economic slowdown as soon as this quarter. 

Molten metal being poured at a foundry.

Image source: Getty Images.

Aluminum prices have declined some as the market has fallen but were only down about 1.4% today, so that wasn't what caused the decline in shares. It's more of a macro concern that investors have on their minds. 

Yesterday, Morgan Stanley and Goldman Sachs both predicted that we're already in a global recession; they just don't know how long it will last or how bad it will be. Since the demand for aluminum is tied to economic activity, a recession would be very bad for earnings. 

Now what

There's a lot of uncertainty in the market right now, and for metals and infrastructure companies there could be a big slowdown in demand in the coming months. Factories may also be idled to keep workers home, meaning costs will pile up without a product being made. Alcoa was already struggling with low margins before the coronavirus pandemic hit, but this will exacerbate those financial challenges and could keep pushing the stock lower. 

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Stocks Mentioned

Alcoa Inc. Stock Quote
Alcoa Inc.
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The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
GS
$302.75 (5.79%) $16.58
Morgan Stanley Stock Quote
Morgan Stanley
MS
$77.82 (5.21%) $3.85

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