Insights

Why General Motors Stock Hit the Brakes Today

What happened

Shares of the automotive maker were plummeting this morning after General Motors(NYSE: GM) chief financial officer, Paul Jacobson, made comments yesterday that indicated the company is preparing for an economic slowdown. 

The comments came on the same day that the Federal Reserve hiked the federal funds rate by 75 basis points as it aims to curb inflation. The automotive stock was down by 7.6% as of 1:42 p.m. ET. 

So what 

CFO Jacobson spoke at a Deutsche Bank conference along with Ford‘s CFO, and both executives addressed rising inflation and higher material costs as well as the potential for a recession. 

Image source: Getty Images.

Jacobson said that GM is taking a cautious approach to hiring, saying that “You don’t want to be growing your head count significantly in the face of a big downturn.” He also added that GM is being “more mindful” about decisions that it makes that could affect the company over the next several years, according to The Wall Street Journal.

Jacobson’s comments came on the same day that the Federal Reserve made the aggressive move of hiking the federal funds rate by 75 basis points, its largest increase since 1994.

With the Fed committed to making significant interest rate hikes in order to tackle inflation — currently at a 40-year high — it appears that GM shareholders are concerned that the Federal Reserve’s moves could end up slowing the economy down too much. 

Now what

There’s still consumer demand for new cars according to both GM and Ford’s executives, but investors are focusing their attention on the Fed’s recent moves. 

With more rate hikes coming and inflation still stubbornly high, there’s bound to be more share-price swings for GM and other stocks in the coming months. 

GM shareholders will get a clearer picture of how the company is doing when the automaker reports its next quarterly financial results, likely in early August.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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