Automobile sales are soaring. In May, auto sales hit a new cycle high and an almost 10-year high. Soaring auto sales are a bullish signal for the economy, but auto stocks seem to disagree. The S&P 1500 automobiles index has been trending down since 2013. What is the performance of auto stocks telling us about the economy? Stock prices are forward looking. Investors may be saying that the current run rate of sales in the auto sector is about as good as it gets. If that is true, a cyclical downturn in auto sales may be closer than some expect or alternatively competition in the sector is about to heat up and drive down the profitability of auto manufacturers.
Jeremy Jones, CFA
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