‘Government Motors’ No More: GM Comes Full Circle

July 30, 2016

By Bob Pisani, CNBC

Signs stand in front of the General Motors world headquarters complex in Detroit, Michigan.
BILL PUGLIANO

General Motors being added to the S&P 500 at the close on June 6th (replacing Heinz ) is more good news for GM, as the stock orbits a two year high in early Wall Street dealings. GM May sales were up 3.1 percent. May light vehicle seasonally adjusted annual rates are now at 15.3 million, well above last year's numbers (13.9 million). and even better than April's 14.9 million.

There was also strong demand for pickup trucks…particularly at Ford, where sales were up 14 percent. It's hard to believe, but pickup trucks are now almost 14 percent of total vehicle sales. Why?

Pickup trucks do well when certain parts of the U.S. economy show improvement: in this case, it's housing/construction, oil and gas. Those groups are big buyers of pickup trucks.

One other point: adding GM will beef up the Consumer Discretionary sector of the S&P 500 Index and reduce the Consumer Staples sector that Heinz was part of.

Elsewhere:

1) Japan's Nikkei Index finally rebounded, up 2.05 percent, on reports that the government might finally overhaul the nation's pensions by raising equity allocations. Japan's pension funds are woefully under-allocated to stocks compared to other pension funds around the world. Japan's largest pension fund, the GPIF, has a targeted 20 percent allocation to stocks (11 percent domestic, 9 percent foreign); the average for other pension funds around the world is closer to 38 percent.

Is Fed tapering bad for Japan? The Nikkei topped out on May 22nd, the same day the Fed minutes were released. It would appear that talk of Fed tightening is bad for Japanese stocks. Citibank has pointed out that historically Federal Reserve tightening has led to a rise in Japanese stocks, since that is viewed as an improvement in the U.S. economy and it usually leads to a weaker yen versus the dollar.

2) More Fed hawk talk: the head of the Kansas City Fed, Esther George, a hawk and a voting member, will be speaking this afternoon…the Dallas Fed's Richard Fisher, also a hawk but not an FOMC member this year, will be speaking this evening. Both will certainly call for the Fed to start tapering its bond purchases sooner rather than later.

3) Dollar General is down big this morning as they reported earnings in line with estimates but reduced full year guidance to $3.15-$3.22, lower than the current consensus range of $3.28. Comp stores sales of 2.6 percent were also below estimates.

The story here is that growth is moderating. All the Dollar Stores seem to be reporting bloated inventories: DG reported a 13 percent increase in inventory per square foot. Based on this, estimates seem to be too high.