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Car trouble could be ahead for the US economy

Car trouble could be ahead for the US economy

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Car trouble could be ahead for the US economy

Car trouble could be ahead for the US economy
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Positive car sales numbers could be giving us yet another sign the U.S. is getting into gear—or they could signal that the economy is about to shift down into neutral.

U.S. auto sales rose to an annualized rate of 16.77 million vehicles in May, which is the strongest pace since 2007. That’s a substantial improvement from the 15.14 million annualized sales reported in January.

(Watch: May auto sales soar)

But Kevin Caron, portfolio manager and market strategist at Washington Crossing Advisors, warns that the surge in auto sales might not last too much longer.

“What you’ve had is a bounce-back from a deep and long recession, where there was a shutdown of purchases of automobiles, so you’ve got some pent-up demand,” Caron said. “I think the real question is, where do you go from here? Because in past cycles over the last 20 or 30 years, when you get back to about 17 million units, you’d expect the rate of growth from here to slow. So I think that’s the most likely outcome.”

All the same, the substantial rise in auto sales confirms the strength seen in other key economic metrics like employment.

“As employment gets better, so, too, do cars. And also we’ve had really low interest rates. So the cars phenomenon is responding, just like housing, to these factors that are influencing the economy,” Caron said.

(Read: Beige Book: Economic growth increases in all 12 districts)

As for the automaker stocks, this year has been a mixed bag. GM, plagued with serious recall issues, has fallen 11 percent. Ford, on the other hand, is up 9 percent, beating the S&P 500 by a wide margin.

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Auerbach Grayson global technical strategist Richard Ross says shares of Ford are about to hit a historically important price level of $18.

Auerbach Grayson global technical strategist Richard Ross says shares of Ford are about to hit a historically important …

Interestingly, just as auto sales could be approaching a moment of truth at the level of 17 million annualized sales, Auerbach Grayson global technical strategist Richard Ross says shares of Ford are about to hit a historically important price level of $18.

The company’s shares have not managed to move substantially above $18 since 2001.

“If we could get back above that big, key, multiyear resistance level, this stock has a lot of upside,” Ross said. “Until then, I think we’re going to see a lot of false starts.”

Ross and Caron lay out the full technical and fundamental take on the automakers in the video above.
 

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