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Motley Fool Issues Rare “All In” Buy Alert
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Shares of automotive stocks were tumbling today as the broader market fell on concerns of near-record inflation and a stronger-than-expected labor market.
Investors are concerned that persistent inflation and a strong labor market will encourage the Federal Reserve to continue hiking interest rates, which could end up slowing the economy down too much.
As a result, Ford (F 3.57%) fell 5.4%, Lucid Group (LCID 5.63%) slid 6.3%, and General Motors (GM 4.67%) tumbled 5.7% as of 11:43 a.m. ET.
The broader market was falling today as investors processed the news that jobless claims fell to 193,000 for the week ending on Sept. 24. That number was lower than the 215,000 some analysts were estimating.
Image source: Getty Images.
While a lower-than-expected jobless rate is good for people looking for jobs, it also means that the Federal Reserve will likely view the strong report as evidence that the economy can handle continued aggressive interest rate hikes.
That has Ford, Lucid, and GM investors worried that the Fed’s continued path of interest rate hikes could end up slowing the economy down too much, and potentially spur a recession. Automakers are very vulnerable to any slowdown in the economy as consumers could pull back their spending if they don’t feel confident in their financial circumstances.
GM investors may be reacting strongly to the news today after the company’s price target was cut yesterday by Citi analyst Itay Michaeli. While Michaeli kept a buy rating on the stock, he cut his price target from $87 to $78 and thinks that automakers will face continued vehicle production issues.
Additionally, Ford investors are combining today’s share price drop with the fact that Michaeli also lowered the automaker’s stock price target from $16 to $13 yesterday and kept a neutral rating for the shares. Like other automakers, the analyst thinks supply chain shortages could potentially hurt production in 2023.
And today’s share price slide may sting a bit more because the company’s share price had just jumped about 8% over the past several days after Cantor Fitzgerald analyst Andres Sheppard initiated coverage of the EV stock with an overweight rating and price target of $23.
Sheppard believes Lucid could capture about 2% of the global EV market by 2026 and that the company has an advantage over its peers with its battery efficiency, fast-charging system, and longer battery range.
The Federal Reserve recently increased the federal funds rate by an additional 75 basis points — for the third consecutive time — to tame inflation that’s running at a nearly 40-year high.
The Fed has also said that it will continue to raise rates in 2023 and today’s jobless claims numbers may further boost the Federal Reserve’s position that it doesn’t need to worry about the job market right now. But investors in car stocks aren’t convinced that thinking is correct. Ford, Lucid, and GM shareholders appear very concerned today that further hikes could push the U.S. economy into a recession.
If that happens, consumers could likely defer purchases of cars, which would clearly affect the top and bottom lines of Ford, Lucid, and GM.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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