CarMax’s earnings miss is a win in the Fed’s battle against inflation, Jim Cramer says

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CNBC’s Jim Cramer on Thursday told investors that used car retailer CarMax‘s recent earnings shortfall is good news for the Federal Reserve’s quest to tamp down inflation.

“When you look at this quarter from CarMax, it tells you the Fed’s been incredibly successful at eroding consumer confidence,” he said. “[Fed Chair] Jay Powell doesn’t want people to spend their money on big-ticket items.”

CarMax missed earnings estimates by 43% in its fiscal second quarter results reported on Thursday, citing macroeconomic issues including inflation and soaring interest rates. 

Shares of Carmax tumbled nearly 25%, notching a new 52-week low. The stock also dragged down shares of other used car dealers including Carvana and AutoNation, which fell 20% and 10%, respectively.

One factor that showcases the used car market’s downturn is a decline in vehicle prices, according to Cramer.

The Manheim Used Vehicle Value Index, a pricing trend indicator, has steadily declined this year even as each monthly reading was up from the year before due to earlier price increases. However, it’s likely there’ll be a year-over-year decline in prices next month, he said.

“That represents real progress in the war against inflation,” Cramer said.

He added that while some investors tried to bottom fish in the used car space before CarMax reported its quarter, they should have known better than to do so in the current inflationary environment.

“The used car stocks looked cheap, but that was a trap because they simply can’t meet Wall Street’s earnings estimates in this environment,” he said.

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