Why Steel Stocks Are the Perfect Blend Between a Hot AI Trade and a Crash-Proof Portfolio

This stock market is shaky at best. Some might even say you need "nerves of steel" to navigate through it successfully. 

As it turns out, the continued geopolitical turmoil has kept prices high for many commodities. And that has put a bid under commodity stocks, including, ironically, steel stocks. That makes the VanEck Steel ETF (SLX) a consideration for AI-weary investors. 

More News from Barchart

• CoreWeave Just Scored a Leidos Partnership. What That Means for CRWV Stock Here.

• Palantir Is Set to Deliver Strong Q2. Analysts See 60% Upside Potential for PLTR Stock.

• Earnings, PMI and Other Key Things to Watch this Week

• Get exclusive insights with the FREE Barchart Brief newsletter. Subscribe now for quick, incisive midday market analysis you won't find anywhere else.

SLX is a 40-stock ETF, although 10 stocks account for 57% of the fund's assets. That includes U.S. firms involved with the commodity, as well as those in Latin America and Asia. As steel (HVQ26) is a bit of a market niche, with far less glamour than gold, silver, or even copper, its $167 million asset base, 20 years since it debuted, is not surprising. 

When we examine SLX's past performance (above), its 1-year return simply made up for lost time. If we interpolate between that and the 5-year return, we realize that most of the past five years has resulted in lagging performance for SLX versus the S&P 500 Index ($SPX). 

It also speaks to the highly volatile nature of investing in steel stocks. Indeed, the ETF's beta over that time period indicates that it was 24% more volatile than the S&P 500. And at 21x trailing earnings, this basket is not particularly cheap. Still, that might not matter to the market when commodity prices are rising more than stock prices are.

When global trade friction or broad economic weakness threatens corporate earnings, domestic steelmakers benefit from trade protectionism. High tariffs on foreign steel (such as Section 232 measures and tariff hikes up to 50%) effectively block cheap imports from flooding the domestic market.

This gives domestic U.S. producers strong pricing power and guaranteed market share, creating an insulated revenue moat (sustainable competitive advantage) even if overall global demand softens.

And, while consumer spending and tech earnings contract during dangerous market environments, public sector infrastructure spending operates on multi-year, locked-in budgets. Highway, bridge, rail, and port upgrades funded through government infrastructure initiatives provide guaranteed, non-discretionary steel demand. Furthermore, global geopolitical friction and domestic grid modernization mandate steady consumption of plate steel and specialized electrical steel, regardless of stock market sentiment.