CVNA - Auto dealer stocks accelerate on signals of consumer resilience

Auto dealer stocks were among the major gainers in a broad rally for consumer discretionary stocks on Tuesday.

Shares of Lithia Motors ( NYSE: LAD ), AutoNation ( NYSE: AN ), Sonic Automotive ( SAH ), Penske Automotive Group ( NYSE: PAG ), Asbury Automotive Group ( ABG ), and Group 1 Automotive ( GPI ) all surged higher by 5% or more. Meanwhile, beaten-down online auto sellers Carvana ( CVNA ) +13.84% and Vroom ( VRM ) +14.47% marked even greater gains, with CarMax ( KMX ) +4.91% ticking higher as well.

The sharp gains for the sector came in line with a rally across the consumer discretionary sector, especially in retail, after stronger than expected earnings from both Walmart and Home Depot. The signals from both retailers appeared to support a more bullish view on US consumers despite still-present inflation issues and concerns on Fed tightening.

The move higher on Tuesday continues a stark run for the consumer discretionary sector that has led sector ETFs like the Consumer Discretionary Select Sector SPDR ( XLY ) about 20% higher in just the past month. That gain has notably outpaced the broader S&P trend.

According to Bank of America, the recent rally has attracted a noticeable increase in buying in the previously unloved sector. The bank’s analysts supposed that this rally is also banking on a more dovish Fed moving forward.

“Consumer Discretionary is typically an early-cycle sector that outperforms during Fed easing cycles, though outperformance for consumer services stocks often begins earlier,” a note to clients read.

Read more on the relief rally taking retail higher on Tuesday .

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