Auto stocks fall as broader market retreats

Auto stocks drop with market as analyst cuts sector rating on interest-rate concerns

Associated Press

DETROIT (AP) -- Shares of major automakers fell Tuesday as disappointing earnings news pushed the stock market lower and an analyst told investors that auto stocks usually falter when interest rates rise.

Every major automaker's stock was down in afternoon trading, led by upstart electric car maker Tesla Motors Inc., which tumbled nearly 13 percent to $110.97. Ford Motor Co. and General Motors Co., which had been trading at two-year highs for the past couple of months, saw declines as well.

The Dow Jones industrial average drifted lower, led by Coca-Cola, the world's largest drinks maker, which saw its shares fall after the company reported lower sales in North America. Marathon Petroleum, a fuel refiner, said its business was being hurt by renewable fuels laws and forecast weak earnings for the second quarter.

Adding to the market decline was a note from Goldman Sachs analyst Patrick Archambault saying that auto stocks have performed below the Standard & Poor's 500 index by an average of 26 percent in three of the last four money-tightening efforts by the Federal Reserve. Archambault moved his rating for the sector to "Neutral" from "Attractive."

Stocks have been volatile since June 19, when Fed Chairman Ben Bernanke said the central bank planned to reduce its economic stimulus bond-buying program. The central bank has been buying bonds to keep interest rates low and encourage borrowing and spending. But Bernanke's comments have scared investors who fear that interest rates will rise whenever the bond program is curtailed. Investors will be watching for signs of when interest rates might go up when Bernanke speaks to Congress on Wednesday.

Last week Bernanke said the Fed would go slow in raising rates, and that pushed the markets to record highs.

But the auto sector fell on Tuesday after Archambault wrote that auto stock growth typically slows as long-term interest rates rise. "We believe this justifies a more balanced sector view, which, if anything, puts the emphasis on stock-picking over a broad sector call," he wrote.

Auto stocks have slowed in past money-tightening cycles even though demand for cars and trucks strengthened, according to Archambault.

The best investments in the sector, he wrote, are companies that are in the midst of rolling out strong new products like GM and Ford. He gives GM a "Buy" rating with a $45 one-year price target. Ford also is rated "Buy" with a $20 price target. Only GM makes Archambault's "Conviction Buy List." GM's biggest margin opportunity is its new full-size pickup trucks, which reached showrooms earlier this month, he wrote.

Shares of GM were down 30 cents to $36.20 in afternoon trading, while Ford fell 55 cents, or 3.2 percent, to $16.57.

U.S. shares of Japanese automaker Toyota Motor Corp. lost 68 cents at $128.96, while Honda Motor Co. 44 cents to $38.19.

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