Avoid GM, STLA, F, in US Politics-Poker game.
On Mon, 03 Feb 2024, US stocks ended lower, but recovered from their intraday session lows.
This comes, after President Trump confirmed that he would pause imposing new tariffs on Mexico (first) and Canada (subsequently) for 30 days.
Though tariffs levied against China remains on course to take effect on Tue, 04 Feb 2025.
At 4pm, when US market closed for Monday, (see above)
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DJIA : -0.28% (-122.75 to 44,421.91).
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S&P 500 : -0.76% (-45.96 to 5,994.57).
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Nasdaq : -1.20% (-235.49 to 19,391.96).
Investors expecting that Trump administration's 2nd term to kick off with business-friendly policies instead have been barraged by policies tied to:
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Tariffs.
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Immigration.
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Cost-cutting within federal government.
There is common consensus that all 3 executive orders when enforced, will cause (i) the US economy and (ii) stock market to crumble further and crumble respectively.
As a legitimate businessman, he should be all too clear about the tariffs’ implications & repercussions.
Because of this, focus has shifted to bonds, that should offer investors more protection as:
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Trade negotiations play out.
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Worries about inflation pressures slowly creeping in.
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Potentially slower US growth intensify.
US 10-years Treasury yields.
On Monday, the Treasury curve flattened with short-term yields rising relative to rates on longer-term government maturities, as traders factored in higher-for-longer interest rates and slowing economic growth.
US 10-years Treasury yield has risen marginally by +0.022 to 4.565% (see above)
CME FedWatch predictions.
With elevated inflation being the end product if and when Trump’s tariffs get implemented, the probability of an interest cut by -0.25% in March 2025 has dimmed to 13.5%. (see above)
Assume Tariffs Are Implemented !
Although US market heaved a sigh of relief and “recovered” a little from Monday’s intraday low, the threat to implement tariffs remains.
The halt is a temporary reprieve for 30 days only.
By end February 2025, both Canada and Mexico are still expected to reach some sort of a compromise with US, to avoid the full effects of the tariffs.
Affected Industries.
If tariff talks fail, below sectors/industries would be hit the hardest:
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Auto makers. (most exposed)
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US manufacturers.
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Farmers.
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Restaurants.
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Beer and alcohol brands.
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Packages and shipments (from overseas).
Due to real estate, my post will focus on impact to US Auto industry should Trump’s tariffs get implemented.
US Auto Industry.
Auto stocks, a convenient investor proxy for international trade were at the heart of Monday’s global selloff.
On Monday, prior to the temporary tariffs halt on Mexico and Canada, $General Motors(GM)$ was down -6% during intraday session.
US car stocks performances on Mon, 03 Feb 2025
Car Stocks Tumbled.
On Monday, US 3 major car makers (all) fell when trading began. (see above)
When news of the temporary reprieve was announced, all 3 car maker stocks staged a recovery of sort.
Ultimately, they closed lower when US market ended trading:
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$Stellantis NV(STLA)$. Fell by -3.88% to $12.62 per share.
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General Motors(GM)$. Fell by -3.15% to $47.90 per share.
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$Ford(F)$. Fell by -1.88% to $9.89 per share.
Why Is This Happening?
The reason why US 3 traditional car makers faltered is mainly because automakers use Mexico and Canada (as base) to manufacture (a) vehicles and (b) car parts for the large and lucrative US market.
President Trump’s 25% tariffs will make the Auto-industry the biggest losers.
According to $Jefferies Financial Group Inc.(JEF)$ : (see above)
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GM assembles 63% of its North America production in the US, compared with 83% for Ford.
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This means GM is likely to be worse affected by the tariffs than its crosstown rival, Ford.
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Non-U.S. manufacturers are in a similar position to their Detroit peers, with 67% of North American vehicles assembled in the US on average.
US Auto-Industry Poker Game.
Is there a possibility that Mr Trump is actually not keen to go through with the tariffs implementation ?
Is the rhetoric on signing the executive order just for show (only) to pile pressures on Canada, Mexico and China, forcing them to yield to his demands ?
The out-of-the-box hypothesis is derived based on mapping (a) US car assembly plants in the US against (b) US states where Trump had won in early November 2024 election.
How likely is Trump going to sacrifice the states that have helped him won his 2nd term in the oval office, with tariffs rollout, that might ultimately lead to the collapse of the auto industry ?
Afterall, President Trump used to be a “reality” star on US reality program - The Apprentice, lest we forget.
What do you think ?
My viewpoints: (mine only)
US auto industry has received significant subsidies from the government, over many, many years.
These subsidies aimed to:
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Support the industry during economic downturns, promote innovation, and ensure job security for American workers.
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During 2008 financial crisis, the substantial financial handout to major automakers prevented their collapse.
Subsidies Justifications:
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Economic Stability: Prevent the collapse of major automakers would have had disastrous consequences for the broader economy, potentially leading to the loss of millions of jobs.
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Innovation and Competitiveness: Subsidies help automakers invest in research and development, which is crucial for staying competitive in the global market.
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Environmental Goals: Funding is also directed towards the development of electric and advanced vehicles to meet environmental standards and reduce dependence on fossil fuels.
Domestically, through legislation and subsidies, the US government has artificially prop up this “sun setting” industry so that it does not have to deal with:
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Mass unemployment.
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Massive challenge to redeploy US inelastic labour with outdated skill set.
The longer US auto makers delay full on production of electric vehicles, the harder it will be for them to cross over successfully because the goal post gets further and further away from them.
It is one industry that is waiting to become outdated, irrelevant, and finally die a natural death.
This is exactly the reason why I do not have any of the 3 major car makers’ stocks.
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Do you think Mr Trump is gung-ho enough to raise tariffs, with China, Mexico, Canada or EU retaliating in kinds?
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Do you think US auto stocks are good long term investment OR short term speculative gains ?
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