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Why Metals and Minerals Stocks Popped on Wednesday

By Travis Hoium – Mar 2, 2016 at 4:40PM

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The bulls were out in force buying these commodity stocks today, but will the pop last?

Image source: Stephen Codrington via Wikimedia

What: Shares of metals and mineral stocks popped today as U.S. economic data and bullishness from overseas brought investors back into the sector. Freeport-McMoRan (FCX -2.34%) jumped 13%, Cliffs Natural Resources (CLF -1.26%) was up 22%, Allegheny Technologies (ATI 0.92%) popped 11%, and Century Aluminum (CENX -3.32%) was up as much as 11% in trading today. 

This follows a very volatile year for these stocks as investors react to falling commodity prices, and an oversupply that's largely out of each company's control.

So what: On a macro level, the Institute for Supply Management said that its index of national factory activity increased 1.3% last month, to 49.5, the highest level since September. This still indicates contraction in the manufacturing industry, but investors are cheering the index heading higher right now. 

A report from the Commerce Department also said that construction spending was up 1.5% in January, to $1.14 trillion, the highest level since October 2007. An increase in construction should lead to higher demand for raw materials and metals, and is a very bullish sign for the economy. 

It also didn't hurt that Asian and Brazilian metals and mineral stocks were up significantly today on bullish sentiment for global demand. Companies have been struggling with tepid demand growth and oversupply, driven by China, and so any positive news is being cheered by investors right now. 

Now what: While the positive sentiment might be driving stocks today, there's still not a lot of fundamental improvement in the market. Prices are extremely low, demand is barely growing, and there's not a lot of evidence that suppliers are cutting back production long term.

I think that, eventually, low oil prices will shift spending into other sectors, like construction and consumer spending, driving long-term growth. Until we see fundamental evidence that that's happening, the pops and drops of Freeport-McMoRan, Cliffs Natural Resources, Allegheny Technologies, Century Aluminum, and other metals and minerals stocks will keep happening.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of Cliffs Natural Resources and Freeport-McMoRan Copper & Gold,. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Freeport-McMoRan Inc Stock Quote
Freeport-McMoRan Inc
$37.15 (-2.34%) $0.89
Cleveland-Cliffs Stock Quote
$15.70 (-1.26%) $0.20
Allegheny Technologies Stock Quote
Allegheny Technologies
$29.51 (0.92%) $0.27
Century Aluminum Stock Quote
Century Aluminum
$8.44 (-3.32%) $0.29

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

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