Cars Are Back In Style

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What's going on?

US carmakers reported much stronger sales than expected in September, helping to push up the stock prices of Ford and General Motors (GM) by 2-3% on Tuesday and giving investors another signal that the US economy is doing pretty well.

What does this mean?

Overall, auto sales in the US climbed about 10% in September (versus a year ago), a hefty rise after sales had declined earlier this year. The big turnaround has some mitigating factors to consider. For one, sales were boosted as customers bought cars to replace those destroyed by the two major hurricanes the US recently faced. Also, car dealerships relied on heavy discounts to shift cars that had piled up on their lots throughout the year (to make way for next years models). Nevertheless, the sales were much stronger than expected, buoying investors appetite for auto stocks.

Why should I care?

For the market: This puts a dent in the argument that auto sales are in terminal decline.

There has been a popular school of thought among some investors that US auto sales peaked in 2016, and auto sales will never surpass the number sold that year. This pessimistic case rests partly on the idea that younger generations are buying fewer cars, given the trend toward more urban living and the rise of Uber and Lyft. While there are certainly mitigating factors to Septembers strong sales, the stock prices of both GM and Ford are up about 20% over the past six weeks, suggesting that investors pessimism was overdone.


The bigger picture: It paints an encouraging picture of the US economy.

Buying a new car isnt something people typically do if they are worried about their job security or facing living costs that are rising faster than their wages. The strength of auto sales is another sign that the US economy is doing pretty well and thats typically good for everyone, including investors (US stocks hit another record high on Tuesday).

Originally posted as part of the Finimize daily email.

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