What happened
Ford (F 2.28%) shares dropped nearly 3% Thursday morning as markets reacted to the Labor Department's latest monthly inflation data. But by 12:50 p.m. ET, the stock reversed course with a gain of 1.2%. That also followed a market reversal, but it also reflects how different investors are thinking about Ford stock from different perspectives.
So what
There was good reason to think Ford shares would drop on the worse-than-expected inflation data. Ford is in the beginning stages of its transition to a company with three separate segments, and many investors are focusing on the electric vehicle (EV) segment. Ford CEO Jim Farley has announced plans to invest $50 billion to grow its EV production to an annual run rate of 600,000 by the end of 2023 and 2 million just three years later.
Image source: Ford.
The initial reaction to the inflation data was a rise in expectations for more interest rate hikes and the more likely scenario of a hard landing or recession. That economic scenario would impact Ford's ability to make the investments needed for its EV business. Earlier this week UBS analyst Patrick Hummel downgraded Ford stock to a sell rating, saying a recession could wipe out Ford's operating profit and cause losses. Ford needs to generate profits to fund its planned investments.
NYSE: F
Key Data Points
Now what
But there is another view that a recession is not inevitable in the U.S. The Federal Reserve only began raising interest rates this spring, and it shouldn't be expected to have corrected an inflationary environment in just six or seven months. Every new bit of data that doesn't show the U.S. economy slowing at a gradual rate seems to be making investors more nervous.
But if a recession is avoided, Ford stock could be a good investment from here, and that helps explain the optimistic change today. As in every other aspect of investing, patience and a long-term outlook are needed.
