Look at May Auto Sales - No Wonder the Stock Market Is Up

DETROIT ( TheStreet) -- Forecasters see auto sales rising 3% to 7% this month, with the sales pace the highest it has been this year. They also see little impact so far on GM ( GM) sales from the automaker's 14 million U.S. recalls this year.

The sales growth comes as the stock market is reaching record levels, underscoring the long relationship between the two, which is unsurprising given that both indicators track confidence in the economy's future.

Trends in the Dow Jones Industrial Average have correlated with trends in the seasonally adjusted annualized sales number 78% of the time since 2007, said Cars.com analyst Jesse Toprak. "This year we had a couple of months earlier in the year when they did not correlate, but over longer periods of time, in a series of months, we have never seen it not play out," he said.

Various forecasters including Toprak estimate the May SAAR at 16.1 million, "near the strongest of this cycle," wrote JPMorgan analyst Ryan Brinkman in a report issued Tuesday. A year earlier, the March SAAR was 15.4 million.

"A 16.1 million reading would also represent the third straight month above 16 million and would suggest a strengthening in the underlying rate of demand rather than mere release of pent-up demand following unusually harsh winter weather in January and February," Brinkman wrote.

Toprak said bad weather and lower-than-expected stock market performance hindered sales in the first quarter. "I think we have a bit of delayed demand being realized, and also very generous incentives in the marketplace because of the pile up of inventory," he said.

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