What happened

Shares of copper miner Freeport-McMoRan (FCX -1.10%), steelmaker Steel Dynamics (STLD 0.61%), and aluminum producer Alcoa (AA 0.17%) fell hard on Tuesday, down 6%, 6.3%, and 9.1%, respectively, as of 2:47 p.m. ET.

There wasn't any company-specific news that would explain the widespread declines, although Alcoa did issue a press release saying it would shut down part of one of its smelters in Norway due to high energy costs.

That could be why it fell more than the others, but when commodity-related stocks such as these fall across the board, the likely culprit is recession fears. That's what the market got today, after another "good news is bad news" data release this morning.

So what

Freeport mines for copper, gold, and molybdenum, but its largest segment is in copper, which is used all across the economy, from semiconductors to EVs to construction. Steel Dynamics makes a variety of steel products for a diverse range of end markets, from construction to autos, and Alcoa makes aluminum for industrial and construction markets.

So each mines a commodity that is sensitive to economic conditions, and today, investors began to fear a recession next year in a bigger way. The pessimism began last Friday, when Jay Powell gave a very hawkish speech at the Fed's meeting in Jackson Hole, and was augmented today by strong economic data.

The Federal Reserve is concerned about inflation; while oil and gas prices get a lot of attention on that front, the Fed is actually very focused on the tight labor market. This morning, the Labor Department's July Job Openings and Labor Turnover Survey (JOLTS) data showed 11.2 million job openings, nearly 1 million above economists' forecasts. Meanwhile June's data was revised upwards, from 10.7 million to 11.0 million.

Additionally, The Conference Board released its consumer confidence survey for August, showing a reading of 103.2, above economists' forecast for 98. That showed improving consumer confidence after months of declines, likely due to falling gas prices.

Aren't robust job opportunities and higher consumer confidence good things, you might ask? Well, not when inflation is running at 8.5% and the Federal Reserve is trying to cool down, not speed up, the economy.

Thus, we are in a "good news on the economy is bad news for stocks" era, in which robust economic readings are leading to fears that the Federal Reserve will have to hike rates higher, faster, and perhaps longer. Looking ahead, some fear the Fed will go too far and tip the economy into a recession in order to get inflation under control.

If a recession occurs, demand for copper, steel, and aluminum will fall, taking prices down from the very high levels we have seen over the past year of shortages. That's why any company that mines or manufactures economically sensitive materials was down today.

Now what

Commodity stocks often look cheap, but remember, their earnings power can fluctuate wildly according to economic conditions. If investors think we can have a "soft landing" in which inflation slows without a bad recession, these stocks could very well be buys. Steel Dynamics looks particularly enticing, with a P/E ratio of just 3.6.

However, if we have a "hard landing" in which the economy slows markedly, all bets are off, as there is really no telling where copper, steel, or aluminum prices could go in that scenario.