What happened
CarMax (KMX 0.83%) investors beat the market this week as the stock gained 11% through Thursday trading compared to a 1.5% increase in the S&P 500. That increase erased just a small portion of recent losses, though, as the used vehicle retailer's stock is still down over 50% so far in 2022, according to data provided by S&P Global Market Intelligence.
The rally came as investors gained more confidence that consumer spending is holding up well despite inflation and rising interest rates.
So what
Several major banks made encouraging comments this past week about the health of the consumer heading into the final quarter of 2022. Other generally positive third-quarter earnings reports had investors feeling less concerned about a recession on the way. As a result, the S&P 500 jumped by more than 3% early in the week before settling to a 1.5% increase by late Thursday.
CarMax's auto sales business is highly sensitive to economic growth rates. Management in late September said sales volumes are being pressured by rising prices, inflationary pressures, rising interest rates, and low consumer confidence. Wall Street's judgement that these pressures might be stabilizing helped push the stock higher over the last few days.
Now what
CarMax is likely to continue to struggle under the weight of a difficult selling environment at least into early 2023. Sales trends should remain weak while profits are pinched as the company works to keep a lid on price increases.
Through this cyclical slump, investors should watch broader metrics like market share, which is still rising even as used car sales stall. CarMax is also continuing to make progress on expanding its digital selling platform, a major growth engine over the next several years.
In the meantime, shareholders can expect CarMax's stock to continue moving in sympathy with the wider market as Wall Street attempts to judge the timing of any recession, or economic rebound, on the way. This week those expectations brightened, and so did CarMax's stock price.
