The Mysterious Behavior of the Stock Market

The stock market is typically regarded as a highly efficient and responsive entity that swiftly incorporates all available information into stock prices. However, recent events involving the reactions to earnings from auto suppliers have exposed cracks in this notion.

A peculiar trend has emerged, highlighting a crucial lesson: we must not assume that one group of investors possesses knowledge that has already been assimilated by individuals focusing on a different industry.

A prime example of this manifested on Thursday, with the release of Aptiv's (APTV) earnings report. Despite reporting an operating profit of $560 million from sales reaching $5.1 billion, which were both well-aligned with expectations, the stock experienced a significant 14% decline during midday trading. It is worth noting that Aptiv did face some setbacks due to the strike by the United Auto Workers against the Detroit Three car manufacturers, commencing on September 15.

Curiously, this decline occurred amidst a backdrop of the S&P 500 and the Dow Jones Industrial Average both showing gains of approximately 1.5% and 1.2%, respectively.

The primary cause for concern seems to be the demand for electric vehicles (EVs). Aptiv, being heavily involved in the EV market and selling a larger share of parts for such vehicles compared to traditional cars, was anticipated to experience faster growth than the overall auto sector. However, any deceleration in EV sales growth is perceived as unfavorable news for the company.

It is clear that despite expectations and financial forecasts for 2023 being maintained by Aptiv's management, investors remain cautious due to mounting uncertainties surrounding EV demand.

The Slowing Growth of Electric Vehicles

It should come as no surprise that the growth of the electric vehicle (EV) market might slow down. Recent third-quarter earnings reports from Tesla (TSLA) were disappointing, with CEO Elon Musk attributing part of the problem to high interest rates negatively impacting demand. Other major automakers such as Ford Motor (F), General Motors (GM), Volkswagen (VOW.Germany), and Mercedes-Benz (MBG.Germany) have also expressed concerns about EV demand in recent weeks.

This issue extends beyond just Tesla and the automotive industry. ON Semiconductor (ON) stock has fallen nearly 20% since the company provided weak financial guidance on Monday, with the slowdown in EV growth being a contributing factor.

One important point to note is that investors in Aptiv, for example, may not be following the news or developments of ON Semiconductor or Tesla. Investors often focus on specific companies and may miss crucial information from other sectors. However, by keeping a close eye on a wide range of company reports, investors can avoid surprises and stay ahead of the pack.

Despite the drop in Aptiv's stock value, Thursday's trading did not bring significant changes for auto investors overall. Over the past year, Aptiv's stock has seen a decline of around 17%. It is worth mentioning that shares currently trade for less than 12 times their estimated 2024 earnings, which is relatively high for an auto-parts supplier. In comparison, the S&P 500 trades for closer to 17 times earnings.

In conclusion, while the growth of EVs may experience a slowdown, investors should remain vigilant and stay updated on multiple company reports to make informed decisions.