Wall St Week Ahead-Strong sales could shift Ford, GM to higher gear

30 May 2015 | Author: | No comments yet »

Car Sales in May Could Trigger Ford, GM Rally on Wall Street.

Meeting those forecasts could be enough to lift the sector – among the cheapest in the market – putting the sting of product recalls and tepid recent growth in the rear view mirror. Number-crunchers are paying close attention to the automotive space, as “Big Three” American automakers Ford Motor (NYSE: F), General Motors Co. (NYSE: GM), and Fiat Chrysler Automobiles are set to announce May sales statistics next week. Estimated sales of 1.6 million new cars and trucks in May would make for a seasonally-adjusted annual rate of 17.4 million vehicles, according to Edmunds.com, a car buying platform. “This is going to be one of the best months ever,” said David Kudla, chief investment strategist of Mainstay Capital Management in Grand Blanc, Michigan.

And while April was a tepid month, May could represent a big comeback, thanks to lower gasoline prices driving demand for trucks and sports utility vehicles, both of which cost more and generate larger profit margins. His forecasted May statistics include sales hitting $40 billion, which is close to the record of $40.3 billion set in August 2014, while he also noted that the average age of cars in the U.S. is between ten and eleven years. Another variable that may contribute to better sales in May is the recently concluded Memorial Day weekend. “Because there was a full week of May after the holiday weekend, shoppers had plenty of time to take advantage of the deals being widely communicated in dealer and automaker marketing messages,” posited Edmunds senior analyst Jessica Caldwell. At the close of trading yesterday, GM was trading at $35.97, a decline of 1.15 percent, while Ford’s share prices were at $15.17, down 0.78 percent from the day prior. GM is the fourth-cheapest stock in the S&P by this metric, with StarMine estimating that shares should trade at USD 81.69, more than twice its Thursday closing price of USD 36.39.

While auto stocks could rally if the sales come in as expected, it could spell bad news for the broader market, as any sign of consumer strength could nudge the US Federal Reserve into raising interest rates more quickly that is currently anticipated. “Good data would make the Fed raise rates sooner. I believe the stock market would sell off (on strong auto data) because it would shorten that timeline,” said Battle who expects a rate hike in the fall.

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