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Thursday, July 7, 2022
I recently got into an intense discussion with a stocks-loving colleague on Tesla.
This person – let’s call them Pal for the sake of this story – put forth the interesting view that Tesla was now the most important stock in the entire market.
I took "most important" to mean that the day-to-day happenings for the electric vehicle company – from crazy moves in the stock price to sales updates to analyst recommendations – say significantly more about the wider world than, say, Apple or General Electric. And by extension, investors would be better served taking their buy and sell cues from what’s going on Tesla rather than obsessing over developments at much larger companies.
I got respectfully defensive after hearing Pal’s matter-of-fact views and fired back that the argument couldn’t possibly be true. How could a Tesla say more on the health of consumers, supply chains, and markets than mighty Apple?
Apple has a market cap of $2.2 trillion and there are more than 1.8 billion active Apple devices worldwide as of January 2022. Tesla, meanwhile, has a market cap of $715 billion and a few million customers. Sure, Tesla stock is consistently one of the hottest ticker pages on Yahoo Finance, but it’s still just Tesla.
In any case, Pal’s views have stayed with me for a week or so. Then we got Tesla’s delivery numbers for the second quarter on Sunday – and it made me at least be more open to what Pal was pontificating.
The electric vehicle maker said that second quarter deliveries tallied 254,695. While that represented about 27% year-over-year growth, it fell short of analyst estimates for 256,520. In a note to clinets, Citi Itay Michaeli pinned the miss on a shortfall in deliveries of Tesla's Model 3 and Model Y amid plant COVID related manufacturing downtime in China and chip shortages.
The market’s response following the company’s deliveries report was a sharp drop as the Street marked down their profit forecasts for Tesla on concerns about demand and raw materials inflation. Suddenly, renewed recession fear headlines were plastered all over the place and oil prices tanked below $100 a barrel this week.
Was it a coincidence that we got this market reaction in the wake of Tesla’s deliveries numbers? I don't think so.
“In our opinion Tesla is the most important stock in the market along with Apple to gauge chip issues, consumer demand, China, and is a litmus test stock for the broader market,” Wedbush Senior Equity Analyst Dan Ives, a Tesla bull, said to me via email. “In a shaky macroeconomic environment, the Street is laser focused on Tesla here with Apple close behind.”
Do I agree with Pal and Ives that Tesla is the most important stock in the entire market? Absolutely not. I still would prefer to stake my predictive powers to the colossal ship that is Apple.
But I do have greater appreciation for Pal’s argument in light of this week’s broader market action and news flow on Tesla. The company is a solid proxy on the investing appetite of retail investors (who enjoy following Elon Musk) and does offer clues on where the economy (and maybe even stocks) may head in the future.
So if Pal proves correct in their thesis, buckle up – it could be a few more rough weeks ahead for stocks.
What to Watch Today
7:30 a.m. ET: Challenger Job Cuts, year-over-year, June (-15.8% during prior month)
8:30 a.m. ET: Trade Balance, May (-$84.7 billion expected, -$87.1 billion during prior month)
8:30 a.m. ET: Initial Jobless Claims, week ended July 2 (230,000 expected, 231,000 during prior week)
8:30 a.m. ET: Continuing Claims, week ended June 25 (1.330 million expected, 1.328 million during prior week)
Helen of Troy (HELE) is expected to report adjusted earnings of $2.00 per share on revenue of $475.25 million
Levi Strauss (LEVI) is expected to report adjusted earnings of $0.23 per share on revenue of $1.43 billion
WD-40 (WDFC) is expected to report adjusted earnings of $1.28 per share on revenue of $143 million