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Why Brazilian Steel and Utilities Stocks Surged Today

By Rich Smith – Updated May 26, 2020 at 12:50PM

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Sometimes, stocks go up for no reason -- or even for a bad reason.

What happened

Memorial Day is an American holiday, but that didn't prevent international stocks -- U.S.-listed Brazilian stocks in particular -- from surging right along with the rest of the market on Tuesday. As of 11:40 a.m. EDT, we're seeing shares of Brazilian steelmakers Companhia Siderurgica Nacional (SID -1.30%) and Gerdau (GGB 3.49%) as well as utilities Companhia Energetica de Minas Gerais (CIG -2.80%) and Companhia de Saneamento Basico do Estado de Sao Paulo (SBS 0.12%) all run higher.

Companhia Siderurgica stock is up 6.8%, Gerdau 8.1% -- and the utilities are up even more, with Companhia Energetica enjoying a 13.9% gain, and SABESP up 16%.

A woman looking at her laptop, perplexed

Image source: Getty Images.

So what

But why is this happening? After all, just yesterday, CNN warned that coronavirus cases in Brazil are growing "by the thousands," and that Brazil has overtaken Russia to become the country with the second most cases of COVID-19 in the world after the United States. The United States announced a ban on entry of travelers from Brazil -- and there are calls in the street for Brazilian President Jair Bolsonaro to resign over his handling of the crisis.  

In CNN's view, at least, this is shaping up to be a "dark week" for Brazil.

Now what

Against this bleak backdrop, there's not a single bit of good news about any of the Brazilian companies that are seeing their stocks surge today. There are no earnings reports, no analyst upgrades -- not so much as a hiked price target among them.  

In fact, just about the only thing I can see arguing in favor of investor optimism over any of these stocks is the fact that they're already down so much. With stock price declines ranging from 26% (SABESP) to 66% (Companhia Siderurgica), investors may simply have resigned themselves to the fact that things are bad in Brazil, and that they're going to remain bad for a while -- but they're hoping that perhaps things aren't quite so bad as to justify the magnitude of the declines these stocks have suffered already.

If and when a cure or a vaccine for coronavirus is discovered (and we just learned today that Novavax is working on a new vaccine), things will get better. With little hope for today, it appears that Brazil stock investors are simply betting on a brighter tomorrow.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Gerdau S.A. Stock Quote
Gerdau S.A.
$4.45 (3.49%) $0.15
Companhia Siderúrgica Nacional Stock Quote
Companhia Siderúrgica Nacional
$2.27 (-1.30%) $0.03
Companhia Energética de Minas Gerais Stock Quote
Companhia Energética de Minas Gerais
$2.08 (-2.80%) $0.06
Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP Stock Quote
Companhia de Saneamento Basico do Estado de Sao Paulo - SABESP
$8.07 (0.12%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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