The shares of diversified mining giant Rio Tinto (NYSE: RIO) have declined by about 6% over the past month, trading at about $58 per share. This compares to the S&P 500 which remains down by about 3% over the same period. The price of iron ore, which is Rio’s single largest product, and accounts for two-thirds of Rio Tinto revenue, has been on the decline recently due to multiple factors. Firstly, there are concerns about the economic situation in China, which is the world’s largest steel consumer. The Chinese property market has been on a weak footing for some time now and industrial data has also been weak. Moreover, a resurgence of Covid-19 cases in some provinces in the country has also resulted in stringent lockdowns, hurting economic activity. This is likely impacting steelmaking activity and demand for iron ore. Separately, the U.S. Federal Reserve and other major central banks are continuing the path of interest rate hikes despite weaker economic growth. This could hurt global growth and, in turn, impact demand from key steel consumers such as the automotive and construction industry.
However, now that Rio stock has seen a decline of about 6% over the last month, will it continue its downward trajectory in the near term, or is a rally imminent? Going by historical performance, there is a roughly equal chance of a rise or a decline in Rio stock over the next month. Out of 554 instances in the last ten years that Rio stock saw a twenty-one-day decline of 6% or more, 279 of them resulted in Rio stock rising over the subsequent month (21 trading days). This historical pattern reflects 291 out of 638, or about 50% chance of a rise in Vale stock over the coming month, implying a neutral near-term outlook for the stock. See our analysis on Rio Stock Chance of A Rise for more details.
Calculation of ‘Event Probability’ and ‘Chance of Rise’ using last ten years data
- After moving 6.6% or more over five days, the stock rose in the next five days on 51% of the occasions.
- After moving -3.7% or more over ten days, the stock rose in the next ten days on 54% of the occasions
- After moving -6% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 50% of the occasions.
This pattern suggests that Rio stock is unlikely to see major gains in the near term.
|S&P 500 Return||3%||-15%||82%|
|Trefis Multi-Strategy Portfolio||5%||-12%||250%|
 Month-to-date and year-to-date as of 9/10/2022
 Cumulative total returns since the end of 2016