Tesla Is On A Rampage
Monday was all about Tesla. There was an article on Tech Crunch that was titled “Tesla Shares Rally For No Reason.” This is a big deal because Tech Crunch isn’t a stock website. Tesla shares were up 11.2% on Monday for no reason like the article said.
To be clear, it has been up for no reason many times this year. Sometimes the reasons the media creates for why stocks move aren’t real. It sounds boring but when stocks go up, the buyers are willing to pay more for shares and the sellers won’t sell at low prices.
There is no way of knowing why stocks move every day. Some days it’s more obvious than others. This stock will likely go up on excitement about battery day on September 22nd. You can argue that’s for no reason because nothing was announced today. We’ve known about battery day for months. An 11.2% spike about an event we already knew about even surprised me.
Tesla stock is up 33.6% in the past 4 days. It initially spiked after the split was announced. Personally, I think the main reason it rose was because it was oversold. When this story finally ends, the stock won’t rebound. It’s just that the correction in August wasn’t the end of this saga.
How could the bubble burst right before one of the biggest announcements in company history? Elon Musk is now the 4th richest person in the world. This is a sign of how big the bubble has gotten, not a sign of sustainable wealth like the others on the list (Bezos, Gates, and Buffett).
Tesla’s market cap is $342 billion as the table above shows. Tesla would be the 10th biggest stock in the S&P 500 if it were to be added. It's unliely that it will be added because the stock is clearly in a bubble and it only makes money because of tax credits. It has been a few weeks since it reached 4 quarters of profitability and we have heard no news about it being added.
If it’s not added by the end of the year, there will likely be a controversy assuming the stock’s bubble doesn’t burst. Tesla would be almost 1.2% of the index. Even if it crashed to zero, S&P 500 index fund owners would be fine. Holders of the Nasdaq 100 would be in more pain as Tesla is 2.7% of that index.
One theory on Tesla is that the company will reach peak hype right before battery day. Bulls will be surer than ever that this is the best stock in the world. However, when Tesla reports its next few quarters, it won’t be able to benefit from the opening of the China factory and Model Y’s release, so they will disappoint. Tesla only dramatically outperformed other automakers last quarter because of those benefits.
High Momentum Is Exploding
Obviously, it’s not just Tesla stock that has been doing well. Cloud and online retail stocks have had a great year. Cloud index was up 1.66% on Monday. It’s still down 5.5% from its record high. Fastly was up 2.8%, but it’s still down 32.3% from its record. Zoom was up 8.7% which put it down 3.5% from its July record.
As you can see from the chart below, high momentum versus cheap value had the highest z score ever in June. It destroyed the 2000 peak. Some investors claim the momentum stocks have always been winners regardless of valuation. This is recency bias. They were weak versus cheap growth in 2017 which allowed this rally.
Now it has gone too far. We’ve seen a reversal recently as small cap value is up 17.6% since July 9th. Factor was down 0.2% on Monday as it is having trouble surpassing its June 8th high just like the S&P 500 can’t pass its record high.
FAAMNG Update
The chart below shows the market with and without the top internet stocks. As you can see, the FAAMNG stocks are up 40% year to date. With FAAMNG, the index is up 4.2% and without them it’s down 4.1%. Amazon hasn’t increased since July 10th like many of the momentum stocks outside of Tesla. Maybe momentum investors are crowding around the last vestige for quick gains.
Yet Another Failed Record Attempt
There might be something brewing with the market because it failed to reach a record high again. This counts as the 4th straight attempt at a record. If it doesn’t reach a record this week, it’s a problem. Conversations about a double top will heat up soon.
S&P 500 was up 0.27%, but it closed about 5 points below the February 19th record. It looks like the momentum stocks, which have led the market this year, have lost steam.
Value stocks can’t lead the market. They are too small. Nasdaq was up 1% largely because of Tesla’s rampage. Craziest of all the big cap momentum names is the last one standing. Russell 2000 was up 0.48% as small cap growth rose 1.1%. Overstock was up 26.5% as it now has a $5 billion market cap. It’s up 1,578% year to date. Worst sector was the financials which fell 1.5%. Regional banks fell 1.8%.
Conclusion
The stock market keeps failing at hitting a record high as the leaders have run out of steam. One leader left is Tesla which isn’t part of the S&P 500. Its enormous rallies can’t get the index to a new record. If it doesn’t hit a record this week, this might be a double top.
Tesla probably will rally until the September 22nd battery day event. This has been hyped up so much. Hope is Tesla releases its own million-mile battery. Cyclical value stocks can’t lead the market higher especially if growth falls because growth is too large and value is too small.