General Motors (GM) & Auto Manufacturer's Sector Matrix

Stock markets have experienced significant volatility this past week ahead of Jerome Powell’s speech and the U.S. interest rate announcement, resulting in a choppy trading environment. On Wednesday, the Federal Reserve cut its benchmark interest rate by an unusually large half-point. This marks a dramatic shift after over two years of high rates that the Fed hoped would dampen inflation but, in the process, made borrowing costly for consumers. This highly anticipated rate cut has provided support for interest-sensitive areas such as real estate, banking, utilities, and other dividend-laden sectors. However, the auto sector continues to underperform on a relative basis, despite the potential for lower rates to stimulate big-ticket sales like cars and trucks. Noteworthy global market advances last week include Thailand (+15.05%), Argentina (+8.83%), Spain (+7.21%), and Indonesia (+6.29%). Australia leads the Commonwealth, buoyed by the performance of its five major banks, particularly Macquarie. Conversely, Mexico (-4.29%), South Korea (-3.54%), and Turkey (-3.09%) languish at the bottom of the list. China’s Hong Kong market managed a modest gain of 2.78%, slightly ahead of India at 2.47%. This aligns with a positive performance from the S&P 500 (+2.93%) and TSX 60 (+2.53%), while the NASDAQ faced a tough week, dropping 3.94% but recovering much of that loss after the Fed announcement and as we publish. In commodities, volatility prevailed. Natural gas gained 4.60% this week, contributing to a monthly increase of 16.29%. Among metals, palladium continues to bounce back with a notable weekly increase of 15.20%, albeit recovering from very depressed lows. Silver also performed well, rising 8.27%, while gold remained relatively flat. Sector-wise, SIA's favored sectors saw strong performances, particularly in construction (+6.41%), telecom (+6.00%), financial services (+4.67%), and banking (+3.71%). Other notable performers included chemicals (+8.80%), metals and mining (+8.31%), specialty retail (+7.90%), consumer durables (+7.14%), and automobile manufacturing (+6.85%). This is the area that we will dive a little deeper into in today’s Equity Leaders Weekly.

Most SIA practitioners utilize a top-down strategy to identify the best equities within the best sectors and asset classes. This approach is an easy and efficient way to pinpoint outperforming areas, enhancing performance and, even more importantly, eliminating laggards from the portfolio. Armed with a powerful system like SIACharts, which can analyze extensive datasets, SIA is well-positioned to conduct bottom-up analysis to uncover new sector leadership. This often manifests in the SIA Sector Matrix Reports and typically appears among large caps, characterized by the 'usual suspects.'Speaking of the usual suspects, let’s circle back to General Motors (GM). We last reviewed GM in early June when the shares rallied to the top of the SIA S&P 100 Index Report, as the market hoped for a summer interest rate cut from the Fed. This outperformance is highlighted by the circle in the P&F chart, marking the green area we have circled. After experiencing disappointment, shares pulled back to supportive levels at $40, only to rally again as fall approached. Shares are now closing back toward the green zone of this important SIA Index Report, currently in position #49. Resistance remains at $54.41, followed by $61.28, with a top line at $65.03. Overall, this chart does not suggest a sector that is breaking down. If the old adage that "as goes GM, so goes the economy" holds true, then it appears that America might be great again.

Another important exercise is to dig into the sector and allow the SIA Platform to rank the holdings and measure these moves over time. Our custom matrix, designed for this study, evaluated 75 names in the auto manufacturing sector and ranked them against one another, executing 56,250 comparisons each day to establish the table below, from which we have clipped the upper and lower quartiles.Notice the performance of the SIA Favored green zone and compare this with the bottom holdings. At the top, we see impressive 3-month numbers, but the 3-year numbers remain spotty, indicating that the rally is still fresh. Notable performers include the green bus manufacturer NFI Group, emission control maker Phinia, and luxury car company Ferrari. Additionally, we have the pre-eminent Chinese EV manufacturer NIO, along with the American (now global) manufacturer General Motors.Another significant holding at the top of this custom matrix is the Physical Palladium ETF (PALL) , which speaks volumes in its own right. While it is still early to suggest that the auto sector is fully in play, it does appear that the worst of the declines are behind us. SIA will be monitoring the sector closely, as it provides important insights into the broader economy and will help set the stage for the new administration's economic agenda—not to mention the potential bounties that a new auto cycle could provide economically down the line.