Consumer finance company and bank stock values appear to be pricing in a domestic recession in the foreseeable future, brought on by concerns about energy, the Chinese economy, and the Federal Reserve, according to Kyle Joseph, an analyst at Jefferies LLC.
“People have short-term memories but didn’t totally forget what happened to stocks in 2008, financials in particular,” Joseph told Auto Finance News. “We’ve seen a massive de-risking across financials, especially in names with exposure to consumer credit.”
The five banks with the largest auto finance portfolios, as ranked in the Auto Finance Big Wheels 2015 report — Ally Financial Inc., Wells Fargo & Co., JPMorgan Chase, Capital One, and Santander Consumer USA — have experienced an average year-to-date decline of 21.1% in stock price. Specifically, Santander’s stock has experienced a 41.7% decline in value. In contrast, the S&P 500 is down 10.5% YTD.
Adding to the decline in investor confidence for auto finance in general, is the speculation that “things can’t get a lot better,” Joseph said.
“With the SAAR where it is, rates remaining low, the competition in auto finance, and ongoing lofty used-car prices, a lot of investors believe that the auto business has nowhere to go but down,” he said. “While most players in the auto space would argue that they are heading more towards a plateau than off a cliff, the market is pricing in more of a cliff scenario.”