General Motors Declines on Downgrade
According to Goldman Sachs, investors should ‘rotate’ from General Motors Co. to Ford Motor Co. On Wednesday, Patrick Archambault, an analyst from Goldman Sachs, upgraded Ford from neutral to buy and he also then downgraded General Motors from buy to neutral. As a result, the stocks of Ford (F, +1.77%) advanced 2 percent in midday trade, while the shares of GM (GM, -2.75%) declined 2.4%. Added to this, Archambault also cut his price target for the stocks of GM from $46 t0 $40 which is about 13 percent above current levels, and he also raised his 12-month stock price target for Ford from $18 to $19, which is 22 percent above current levels. Archambault believes that the sales of Ford’s F-150 truck are increasing and this could negatively impact GM’s truck sales. He also stated that he believes that General Motors could be impacted more than Ford as a result of a softening industry outlook for China. In December last year, Ford introduced its aluminum F-150 and since then, the sales of this truck have accounted for almost 50 percent of the company’s sales. Archambault also stated that while GM is already offering sales incentives on its GMC and Chevrolet models in the segment, Ford’s F-150 is just hitting its “sweet spot” in terms of sales. On Wednesday, Goldman Sachs also lowered overall growth expectations for the automotive market in China. Since GM has such a considerable presence in China, this increases the company’s vulnerability while on the other side, Ford depends less on earnings out of China while still having room to increase its market share in the country. Also, Archambault commented that as a result of the investigation of GM’s ignition switch recall, this could also negatively impact the share price while news that Fiat Chrysler Automobiles (FCAU, -2.09%) is trying to merge with GM, could also cause price volatility. Simply put, Archambault stated that we should ‘Rotate! Moving from GM to Ford’.
On Wednesday, U.S. stocks ended lower. This came after 2 consecutive sessions of gains while the Greece debt crisis weighed on investor sentiment. In early trade on Wednesday, a selloff on Wall Street began and as soon as it became evident that Greece and its international creditors would not be able to reach an agreement, the selloff intensified. At the close of trading, the Dow Jones Industrial Average (DJIA) declined 1%, or 178 points, to 17,996.07. All the components of the blue chip index finished lower except for Apple Inc. Also, the S&P 500 index (SPX) declined 0.7%, or 15.62 points, to 2,122.41. Losses on the benchmark index were led by the Materials sector. Meanwhile, the Nasdaq Composite index (COMP) was also on the downside declining 0.7%, or 37.68 points, to 5,122.41. The tech heavy index retreated from an all-time high which it reached on Tuesday this week. Also on Wednesday, the Transportation stocks were hit hard and as a result, the Dow Transport index (DJT, -1.86%) declined nearly 2 percent.
In forex trading on Wednesday, the U.S. dollar held steady. This came after data showed that in the first quarter, the economy in the U.S. contracted less than initially estimated. According to a report by the Commerce Department, in the three months ending March 31, the GDP (gross domestic product) contracted at a rate of 0.2%. This was in line with analyst expectations. The EUR/USD traded steady at 1.1174 after coming off highs of 1.1235 which it reached earlier in the session. The single currency was impacted after Prime Minister Alexis Tsipras stated that some of the latest proposals by Greece on reform measures, were not accepted by creditors. Meanwhile, the GBP/USD traded at 1.5716, down 0.11% while the USD/JPY traded at 124.36, up 0.34%. Also, the U.S. dollar index was steady at 95.62.
On Thursday, crude oil prices eased in early Asian trade. This came as investors shifted their focus to the rig count in the U.S., due out on Friday, as well as the implication for domestic production levels. WTI crude oil for delivery in August traded at $60.25 a barrel, down 1.25%, or $0.76, on the NYMEX. Meanwhile on Wednesday, Brent crude oil for delivery in August traded at $63.49 a barrel, down 1.49%, or $0.96, on the Intercontinental Exchange (ICE) in London. According to the weekly report by the Energy Information Administration on Wednesday, crude inventories in the U.S. declined by 4.9 million barrels last week. This marked the 8th consecutive report of weekly declines.