SMU Analysis: Key Market Indicators through March

Steel Market Update’s monthly analysis of Key Market Indicators has done a good job of anticipating the ups and downs of the steel market in the past, but the economic data currently available seriously lags the impact of the coronavirus on the economy. Only 3 of 36 indicators in this month’s report have even begun to reflect the dire nature of today’s situation. Therefore, we will limit our comments to those three.

To put the situation in perspective, consider this comment from respected market analyst Frank Homes: “Is every bear market cut from the same cloth? Hardly. In a research report, Goldman Sachs analysts break bear markets down into three different types: structural, cyclical and event-driven. Structural bear markets have been triggered by structural imbalances and financial bubbles—think the global financial crisis. Cyclical bear markets have occurred at the end of business cycles—they’ve happened as a result of rising interest rates, impending recessions and/or falling corporate profits. And finally, event-driven bear markets have been triggered by one-off shocks to the economy, such as wars, oil price crashes and emerging market crises. We appear to be in an event-driven bear market, and the good news, from a financial point of view, is that of the three types, event-driven bear markets have historically been less severe than structural and cyclical downturns. Not only have declines been less painful, but they also haven’t lasted as long and recovery times have been shorter. There are a couple of caveats I’d like to point out, though. Number one, no bear market such as this has ever been triggered by a virus or other disease outbreak, according to Goldman Sachs, so we’re literally in unchartered territory. And number two, there’s always the risk that this event-driven bear market will become a cyclical bear market. We are 11 years into the economic expansion, with debt levels and leveraging at all-time highs. Meanwhile, the U.S. government is already running a $1 trillion deficit. This may limit the government’s ability to prop up the economy should it come crashing down.”