Thursday, July 20th, 2017 MST

Auto sales stall; stock market stalls

As stock market indexes fail to punch out new highs, the bulls keep looking for positive developments so that they can keep investors buying stocks.  Some stock bulls have noted that one of the bright spots in the US economy has been auto sales, forecast to hit 17.7  million vehicles this year and breaking last year’s record of 17.5 million.

However, auto sales slowed in May, which is usually one of the best months for sales as Americans buy cars ahead of summer road trips.

GM sales dropped 18 percent from last May; Ford sales dropped six percent and Nissan one percent.  Only Chrysler saw an increase, one percent.  Sales rose six percent between 2014 and 2015 but were up only three percent through April of this year.

Auto sales are considered a great indicator of consumer optimism and slowing of auto sales dampens investor enthusiasm.  Further, one has to look at what has happened to auto financing in the last five years.

Edmunds data tells the story: “Since 2002, the average car loan term has slowly crept past five years, and is now inching past six-and-a-half years. In 2014, 62 percent of the auto loans were for terms over 60 months. And nearly 20 percent of the loans were for 73- to 84-month terms.”

Considering that such financing with a minimum down payment means that most buyers are underwater when they drive off the sales lot, finance companies are not likely to make loans for longer periods.  Auto sales are projected to hit a record this year, but what about 2017?

As sales slow, and maybe decline some months in the second half of this year, optimism about stocks may turn to pessimism.  Further, that stocks cannot hit new highs may be a sign that they will turn down in the near future.

The Fed’s recent delaying another rate hike failed to give stocks any oomph.  But, FOMC voting members have left impressions that a rate increase will come in July.  However, according to the CME’s FedWatch tool, which measures 30-day Fed Fund futures prices, investors currently put the chances of a July interest rate hike at 21 percent.

Investors still in the stock market should seriously consider moving some of those funds to gold and silver.  Present world economic conditions make a 30% position in the metals reasonable.  Moving from high-valued investments to low-valued investments is a time-honored investment strategy.

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