U.S. Car Sales Could Signal The Start Of A Bottom For Investors
NEW YORK (MarketWatch) -- While January's car sales slated for release Tuesday are projected to be terrible, the fact they seem to be stabilizing -- albeit at an awful rate -- could be a positive for an equities market looking for signs of a floor in order to see better times ahead.
"It is at the trough that investors in riskier assets begin looking over the valley toward better times," said Tony Crescenzi, bond market strategist at Miller Tabak & Co.
Crescenzi and other analysts see indications of a basement in recent sales numbers from the ailing industry, with sales in October through December running at rates of 10.6 million, 10.2 million, and 10.3 million units, respectively. January sales are seen running at 10.2 million.
The November figure marked the weakest level since October of 1982, and the uncertain economic climate and tighter credit conditions behind the lousy figures "should continue to be the case in January," said analysts at Action Economics.
"These figures are terrible, of course, given that sales before the recession tended to run near a 16.0 million pace, but the point is that they are stabilizing," said Crescenzi.
"If the actual numbers come in any different from expectations, the odds seem to favor a miss on the downside rather than on the upside. This morning's activity in the trading community may be little more than a set-up for just that possibility," said Kevin Giddis, head of fixed income at Morgan Keegan & Co. Inc.
On Tuesday, shares of Ford Motor Co. and General Motors Corp. were down ahead of the results, which are expected to show sales declines of more than 40% from a year ago. .
GM was among those weighing on the Dow Jones Industrial Average , which at last check stood at 7,969.56, up 32.81 points. The S&P 500 gained 3.54 points to 828.98, while the Nasdaq Composite added 4.46 points to 1,498.89.
Analysts at Action Economics also expect auto sales to stabilize around current levels in the near-term.
Crescenzi believes car sales will either hold or rise in coming months as auto manufacturers lower credit standards for perspective buyers and as the Federal Reserve moves to provide money loans to cover cars and car leases.
"It will of course take more than car sales to turn the economy around, but it is important to remember that pockets of weakness accompany every upturn, just as pockets of strength linger when the economy enters a downturn," said Giddis.
By Kate Gibson