The long story short: Overall stock prices have been driven higher by a very narrow group of stocks for several years, and to see the revival of “dinosaur” stocks starting to participate is a very welcome, healthy sign for the overall market.  We expect this to continue and is a very bullish sign for the equity markets. Read on for more. 

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After a decade of chronic underperformance, both Ford (chart 1) and General Motors (chart 2)  stock prices have rallied sharply over the past year in response to a new strategic vision. (Both charts below from 2011-present)

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by Dave Canal - Contravisory
 

It’s been a long, strange journey for auto manufacturing stocks over the past decade. Ten years ago, both Ford and General Motors were seen by investors as dinosaurs.  Both were cyclical, capital‑intensive, and perpetually behind on technology. That sentiment is changing as both companies have spent the last year cleaning up their portfolios, rationalizing capacity, and leaning into the parts of their business that earn high returns.

After a pandemic boom that saw stock prices rise as a supply/demand imbalance led to a short-term burst in profits, these “old economy” domestic auto manufacturers set their sights on innovation, specifically trying to figure out how to cash in on the EV (electric vehicle) trend.  It seemed both companies would be well positioned to capitalize on this trend (relative to emergent companies like Tesla) considering they had a head start in infrastructure and could theoretically just pivot to EV production.  But that was never the case.

While EV stocks like Tesla boomed for several years, both Ford and GM stock prices languished as they were never able to capture EV market share.  Now, both companies are retrenching as demand for EVs has plummeted for a variety of reasons including the cancellation of EV rebates, potential buyers continuing to struggle with range fear, a new regulatory environment that is no longer insistent (or even in some instances mandating) EV production.  

Both Ford and GM are easing efforts around EV and focusing on their traditional gas-powered trucks and innovative hybrid product offerings.  And the market seems to approve!  Recent earnings have exceeded expectations and stock prices have rebounded impressively. This is a very positive development for the stock market and our economy overall.  Overall stock prices have been driven higher by a very narrow group of stocks for several years, and to see the revival of “dinosaur” stocks starting to participate is a very welcome, healthy sign for the overall market.  We expect this to continue and is a very bullish sign for the equity markets.

Disclosure: Contravisory owns Ford and Tesla personally and for clients