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Here's Why Shares of Goodyear Tire Bounced in June

Lou Whiteman, The Motley Fool

What happened

Shares of Goodyear Tire & Rubber (NASDAQ: GT) rallied 14.1% in June, according to data provided by S&P Global Market Intelligence, following a rare piece of good news in what has been an otherwise dismal year for auto suppliers.

So what

It's been a turbulent year for automakers and their suppliers. Fears of a global slowdown, coupled with talk of trade restrictions between the U.S. and both China and Mexico, have led to weakness in the auto sector. Goodyear Tire was no exception to that trend, with the shares down 26% year to date even after a strong June and down as much as 35% for the year as recently as late May.

An automobile tire.

Image source: Getty Images.

Goodyear CEO Rick Kramer in April told investors if all proposed tariffs and levies against China were to go into effect, they would total 42% to 45% of the import price of tires coming in.

May was particularly tough on Goodyear due to the threats of a new round of tariffs against Mexico, a major supplier to the auto sector, which led to a number of analyst downgrades or price target cuts of Goodyear stock.

The June rebound occurred primarily over the first few days of the month, as rhetoric between the U.S. and Mexico improved and the threat of new tariffs diminished. Goodyear rallied more than 11% on that news and held steady throughout the rest of the month.

Now what

The stock rallied as the prospect of the worst-case scenario, a trade war with Mexico, diminished, but the broader issues facing the auto industry, and Goodyear specifically, are far from over. Total auto sales appear to have plateaued, possibly indicating the start of a downward cycle, and economic conditions in much of the world are deteriorating. Although the U.S. has a temporary truce with China and pledges to continue negotiations instead of rushing new tariffs, there is not yet a deal between the countries.

The good news is that the case for panic selling Goodyear is now in the rearview mirror. But investors should think twice about buying in now hoping June's performance can be repeated in July.

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Lou Whiteman 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.