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Are Auto Trends Pointing Toward Weakness?

CAMS Weekly Views from the Corner – Week Ending 8/18/2017

August 21, 2017

We offered a Weekly View back in April on the observation of the Auto market appearing to have peaked at of the end of 2016.  Realizing there are a wealth of positive ripple effects through the economy from the auto industry we have been watching with increased interest on the developing weakness since our April View.

The most recent Industrial Production report drew additional focus to this topic with the notable drawdown in auto production – something we offered in April as a logical follow-on to a reduction in sales trends if they were to continue.  Said vehicle sales trends have continued lower leading to lower vehicle prices.

The recent Retail Sales Report reflected an increase in auto sales on the largest price drop in nearly 8 years in July.  These lower prices have become a multi-month trend as inventories have increased.  Reducing prices to stimulate demand when inventories have been building is business 101 right.

Auto inventory

The above chart depicts the Inventory-to-Sales ratio for the auto industry dating back a couple of decades for perspective.  As inventories build relative to sales we see an upward trend.  The stand-out observation for this multi-decade chart is that we are now at the highest level we have seen since the inception of this chart in 1993.  This excludes the depths of the 2008/09 recession when this measure spiked.

Breaking solidly above the three level (historically has represented a high water mark) is notable in particular when observing the velocity of the move.  If we continue to see inventories build we can expect the auto production cuts noted in the Industrial Production release to continue.  Realizing the importance of this overall industry and its ripple effects through the economic landscape these negative auto trends are not to be ignored.  We will share accordingly.

Stock Market:

In recent Weekly Views we have offered an on-going concern for the stock market based on its continued deterioration within itself through the summer season.  Our most recent View offered our highest concern with what we call a “leaderless market” meaning there were no areas reflecting leadership from which the overall market could follow.

Historically such an environment offers volatility at best or downside at worst until some leadership asserts itself.  As of now caution is our operative stance in light of our concerns remaining with the on-going lack of leadership within the stock market.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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