Toronto, Ontario -- August 28, 2017 -- This week’s Tuesday Ticker takes a look at the end of the “Trump Bump,” the automotive impacts of Hurricane Harvey, an analysis of Uni-Select and much, much more!
- The big news this week is the massive amount of water currently dropping on Houston in the aftermath of Hurricane Harvey. According to reports, it looks like thousands of light vehicles have suffered damage at the more than 500 dealerships in the city. The entire auto industry in the area has slowed down, obviously. The trains that deliver cars from Mexican plants are not running. Auto haulers are rerouting around the area.
As well, one-quarter of crude oil and natural gas production in the Gulf of Mexico has been shut down. The shipping channel into Houston is the heart of the American petrochemical industry and it’s home to dozens of plants. It is thought that approximately 10 percent of US refining capacity is being shut down. Gasoline futures are already rising and analysts have already begun to cut estimates for August new vehicle sales.
- With corporate Canada on vacation through late August, markets are relatively quiet at this time of year. It will be interesting to see what happens in stock markets this fall when Bay Street traders return to their desks at the start of September. Markets typically trade on thin volumes through the late part of the summer. The action picks up again when traders return to work in the early fall. It’s typically a nerve-wracking time for investors as market crashes have an odd, long-term habit of showing up in September and October.
Could there be reason to worry about a possible market sell-off in the months ahead? Sure. Lot's of analysts are expressing concern about high market levels. Others point out that the current high valuation levels are justified based on the low, low interest rate. The returns from bonds (which pay out a return based on the interest rate level) are at record lows. As a result, the dividends and returns on stocks look great as an investment in contrast. In other words, current high stock prices are justified in light of the low rates. Others are beginning to doubt the sustainability of current values, and have expressed some concerns:
• One worry is that the so-called '”Trump Bump” in the stock market finally giving way. In the months after the American election, markets boomed as investors assumed a Republican administration would be good for Wall Street. Many thought he would cut taxes and promote business friendly policies but now the optimism from the business community is starting to fade. Worries about future economic growth are emerging as it becomes clear that Trump's problematic character and personality is creating more chaos than business.
The Dow fell 177 points on Wednesday, with some market commentators chalking it up to a dawning realization that the Trump Bump in the stock market isn't going to last as long the Republicans and conservatives had hoped. Market types who put up with Trump's flawed personality in the hopes a pro-business agenda would emerge are giving up hope, or so goes the new theme emerging this week among market pundits.
• As well, some big banks are beginning to issues some warnings about the economy in the second half of this year. Three major Wall Street banks this month issued warnings. HSBC, Citigroup and Morgan Stanley all see mounting evidence, “... that global markets are in the last stage of their rallies before a downturn in the business cycle." Strategists at Citigroup are said to be worried that the easing of the financial stimulus implemented n the wake of the onset of the Great Recession in 2008 could stall the economy.
• All in, some investors are beginning to get cold feet. The Wall Street Journalr eported last week that investors have pulled $30 billion from the stock market as it seems sentiment may be shifting.
This week the Dow Jones Industrial Average declined early Monday morning, falling 19 points. The decline was led (no surprise) by the insurance company Travelers Co., which was selling off as investors gauged the damages in Houston.
Shares of AutoCanada recently advanced by 10 percent when that company reported good quarterly earnings. The company's stock was up another 6 percent that Monday. Some investment articles pointed out that while the company's big focus on the west saw the stock fall out of favour with investors over the last two years, a seeming recovery in Alberta has led to a bullish sentiment forming around the stock. Last year the company carried out well over 200,000 collision repair orders, which contributed mightily to the company’s bottom line.
Investing website The Motley Fool did an analysis of Uni-Select this past week, noting that analysts, “... believe that improving long-term trends relating to how long Americans are holding onto their vehicles for will translate well into increased sales for auto parts moving forward. As more used cars circulate the roads, presumably more auto parts will be needed to keep these cars alive, sourced primarily from auto shops which are the number one market Uni-Select sells to.”
The analyst does admit that auto parts companies in the US have taken a big dive of late. It seems the retail chains that provide parts are losing faith with investors who may be worried about the arrival of the mighty Amazon.com into the auto parts and delivery space. Amazon's arrival in other sectors has typically resulted in a shrinking share of the industry for brick and mortar operations. Amazon has also been said lately to be working towards providing collision repair, mechanical and glass services through its site. The websites automated AI voice program would help those logging on to the site find a local repair shop.
As for Uni-Select, the analyst also said they liked the recent acquisition of Parts Alliance, the UK auto-parts distribution company. Uni-Select agreed to buy the company in a market, the UK, that “... remains under-consolidated compared to the North American market.” According to the analyst, “This company certainly is one to keep on the watch list ...”
The Big Three
Ford shares have fallen almost 5 percent in value over the third quarter of 2017. No wonder the new CEO, Jim Hackett, is out and making appearances. Over this same period Chrysler has enjoyed a slight gain in terms of share price. GM has been cutting production as its sales plunge further than other automakers. In the first half of this year GM's US car sales plunged 19 percent. Inventory is piling up and plants are being temporarily shut down. Models said to be under review to be cancelled include the Chevrolet Volt, Buick LaCrosse, Cadillac CT6, Cadillac XTS, Chevrolet Impala and Chevrolet Sonic. Other manufacturers are said to be considering cancelling the Dodge Viper, Volkswagen Eos, Honda CR-Z hybrid 2-door, Lincoln MKS, Taurus and the entire Scion brand.