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Danger of Sell-off in U.S. Stocks Grows as Auto Sales Disappoint

As car sales go, so do U.S. stocks.

By Mark Cudmore, Adam Haigh and Christopher Anstey

(Bloomberg) --You might put it as “what’s bad for General Motors is bad for the stock market.”

Recent history suggests American automobile sales indicate subsequent moves in U.S. equities. Declines in 2011 and 2012 were followed by a retreat in the S&P 500 index, and gains in the fall of 2015 came before a market rally. While the relationship isn’t exact, and correlation doesn’t equal causation, the surprising slump in vehicle sales last month comes just as investors are questioning how much to believe off-the-charts surveys of American confidence levels.

The retreat in the auto sector reported Monday mirrors lackluster broader consumer spending data released Friday. Both readings fly in the face of the two most-followed gauges of consumer sentiment, now at 17- and 11-year highs. It also contrasts with an index of optimism among small businesses -- local car dealers among them -- holding near levels unseen since the mid-2000s.

There’s more hard data coming this week to put the soft data to the test -- read about that here.

On the eve of the car-sales data, one veteran money manager warned that investors may be getting ahead of themselves on their confidence in the economy, with the chance of a sell-off increasing. Bob Doll, chief equity strategist and senior portfolio manager at Nuveen Asset Management LLC, wrote in an April 3 letter to clients that economic concerns were greater than worries over President Donald Trump’s relations with Congress in his effort to enact his agenda of stimulus.

‘Increasingly Cautious’

“We remain constructive in the medium-and long-term toward risk assets, but are growing increasingly cautious about the short-term outlook,” said Doll at Chicago-based Nuveen, which oversees about $230 billion. “At some point, a setback will likely be triggered by a manufacturing decline, soft oil prices, weakening data from China or some other factor, which could spark a risk-off phase.”

Others have also cautioned that investors mustn’t forget that sharp, short-term sell-offs aren’t unusual. But it’s been a while since traders have been hit with such a drop. Stock-watchers last month highlighted how the S&P 500 had its longest streak of days without a decline of at least 1 percent since 1995. The run ended with a 1.2 percent drop on March 21, but that’s been more than made up by subsequent gains.

One sobering observation came from Morgan Stanley analysts in February, when they presented analysis going back to 1950 that showed the chance of a 15 percent tumble in the S&P 500 within any 12-month period was almost one-in-five, at 18 percent.

Declines in car sales didn’t prompt any such drops in recent years, but they might be one sign that the eight-year bull run in equities has some hurdles to overcome before breaking the all-time record in August 2018.
To contact the reporters on this story: Christopher Anstey in Tokyo at [email protected] ;Mark Cudmore in Singapore at [email protected] ;Adam Haigh in Sydney at [email protected] To contact the editors responsible for this story: Christopher Anstey at [email protected] Will Davies

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