Tesla plunged 30 in a month… Ants flirt at night Cho Jae-gil’s New York Stock Market observatory

Ron Baron, a legendary Wall Street investor in the United States, had sold 1.8 million shares of Tesla until recently. If the average selling price is set at $700 per share, it is over $1.2 billion. Baron, a Jewish man, created a fund named after him decades ago, which is at least $45 billion.

Conversely, many individual investors who have chosen to buy Tesla’s stock price correction this time in anticipation of a’thousandsla’ ($1,000 per Tesla share) are sleeping at night. This is because even the $600 mark ($597.95 per share) was broken on the 5th, the last trading day. It has been three months since December 4th ($599) last year that the stock price has fallen below $600. The last month’s return has reached -30.75%.

Despite the recent surge in US Treasury yields, controversy over the technology stock bubble has risen, but Tesla’s share price decline is coming even more. This is because it is a stock with a very large market capitalization.

The biggest cause is the’overvaluation controversy’. It is clear that it is the world’s No. 1 electric vehicle company, but this alone does not justify a 1,000-fold price-to-earnings ratio (PER). In addition, as global competition intensifies, Tesla’s market share in the electric vehicle market is gradually declining.

It’s hard to see how Tesla’s stock will move, but Kathy Wood, CEO of ArcInvest, said, “Now is a low-cost opportunity to buy” Tesla. However, the reality is that they are losing a lot of money after additional investment.

In the New York Stock Market, there is a fierce battle between technology stocks and financial and energy stocks.

Just as Baron sold Tesla, Warren Buffett cut down on Apple’s stake. On the other hand, Bank of America and Exxon Mobil stock prices are steadily rising upward. The general analysis is that the trend of long-term U.S. Treasury bonds has split both sides.

How will it move this week? Here are some schedules and events worth referring to during the week.

-Trend of 10-year U.S. Treasury bond yield (re-breaking 1.6% per annum)
-Results of bidding for 10-year bonds on the 10th and 30-year bonds on the 11th
-Super stimulus package is a’double-edged sword’ on the stock market (if it is clear that the House passes on the 9th)
-Announcement of consumer price index before market commencement on the 10th and impact of government bond interest rates according to the results
-Number of new weekly unemployment benefits claims on the 11th (confirmation of continued employment recovery)
-Oracle, AMC, Adidas, etc.

▶ The situation on the New York Stock Market that ended last Friday?

All three indexes of the New York Stock Market rose significantly on the 5th. The Dow rose 1.85% to 31,496.30, the S&P 500 surged 1.95% to 3,841.94, and the Nasdaq jumped 1.55% to 12,920.15, respectively.

Employment indicators released just before the opening of the market came out better than expected, strengthening confidence in the economic recovery.

According to the U.S. Department of Labor, employment in the non-agricultural sector rose by 379,000 over the past month. It nearly doubled the expert estimate (210,000 people) compiled by The Wall Street Journal. Employment in January was also initially announced as an increase of 49,000 people, but this time it was revised to increase by 166,000. The unemployment rate fell from 6.3% in January to 6.2% in February.

▶ In which sector did employment increase a lot?

94% of the jobs added last month were concentrated in the leisure and hospitality sector (355,000 increase). This is the industry that has been hit hardest by Corona 19. It seems to be the effect of the lifting of the national blockade one after another.

It is interpreted that the US economy has entered a full-fledged upward phase as the job market recovers rapidly. Goldman Sachs maintained its forecast of achieving 5.5% growth in the first quarter of this year, saying, “The increase in employment in virus-sensitive sectors was remarkable.” Morgan Stanley diagnosed, “If it were not for cold waves such as a winter storm, the number of employed in February would have increased by more than 500,000.”

▶International oil prices also jumped a lot.

On the 5th, at the New York Commercial Exchange, the price of Western Texas crude oil (WTI) for April ended at $66.09, soaring 3.5% ($2.26) per barrel. Considering that it formed an unprecedented’negative price’ in April last year just after the pandemic, it has risen quite quickly in a short period of time. WTI prices ranged between $50 and $60 in 2019.

The first reason is that expectations for an economic resumption have risen as signs of employment recovery have become clear, and the outlook that demand for crude oil will increase has spread.

The decision to extend production cuts by OPEC+ (a meeting of 13 oil-exporting countries and 10 other oil-producing countries) also had an impact. Earlier, OPEC+ decided to maintain the oil production volume of next month at a meeting on the 4th at about the same level as it is now. It broke the market’s prospects for production growth.

Investment banks expect WTI prices to reach $70-75 per barrel during the first half of this year.

▶ The key issue last week was the trend of US Treasury yields.

Last week, the Dow (1.8%) and S&P 500 (0.8%) indexes rose, but the tech-focused NASDAQ fell relatively sharply (2.1%). This is because the yield of 10-year Treasury bonds used as benchmarks suddenly skyrocketed.

Treasury bond yields, which were 1.8% per annum at the beginning of last year, fell below 1% per annum on March 5 of the same year just before the pandemic declaration (March 11). (The lowest point reached 0.52% per year on August 4 of last year). Treasury bond yields rose from 1.09% per year on the 1st of last month to 1.54% on the 25th of the same month.

On the 2nd of this month, it fell again to 1.42% a year, but jumped to 1.54% on the 4th and 1.56% on the 5th. On the last day, when the employment index showed good performance, it surged to 1.62% during the day.

▶ Will the Treasury Bond yield be a major variable in the stock market again this week?

It is very likely. The market’s interest in U.S. Treasury bonds is due to observations that rising interest rates will lead to an early taper (reduced asset purchases) by the central bank (Fed). The rise in bond interest rates itself is not positive for the economy as it increases the burden on loans to businesses and households.

In general, when the economy rebounds, it is usually accompanied by inflation and rising interest rates. The problem is that interest rates jump without the market having time to deal with it. The market consensus is that inflation in the US will reach around 2.0% by the end of the year.

▶If there is an event that could have a direct impact on the fluctuations in government bond rates?

It is worth noting the international tenders conducted by the US Treasury Department. On the 10th, a 10-year product ($38 billion) and a 30-year product ($24 billion) will be in progress on the 11th.

At the end of last month, a 7-year government bond bid was conducted, which was sluggish, which triggered a surge in long-term interest rates. There are concerns that bidding may be sluggish as Japanese institutions, major investors in US Treasury bonds, are focusing on selling Treasury bonds near the end of the fiscal year at the end of this month.

▶ How is the Fed’s movement that holds the key to tapering and determining the base rate?

The remarks of key Fed figures often have a decisive impact on the stock market. The closest example is that the global stock market was shocked after Fed head Jerome Powell said on Thursday last week, “There may be pressure to increase inflation as the economy recovers, but I will be patient”. This is because the market interpreted it to mean that it would not intervene in the market even if the Treasury bond rate jumped.

St. Louis Federal Bank Governor James Bullard also said the next day (5th) “We don’t have to be more dove.” First, we have drawn a line on the possibility of artificial measures such as an operation twist, control of the yield curve, and extension of deregulation of capital in banknotes.

▶ Is it necessary to keep an eye on the Fed movement this week as well?

There are no comments from Fed personnel this week. This is because it is the’blackout’ period ahead of the Federal Open Market Committee (FOMC) on the 16th and 17th. Hence, tighter tensions over Treasury yields could continue throughout the week.

The mayor is paying attention to Chairman Powell’s speech, which is scheduled immediately after the FOMC. This month, the 17th is’Big Day’.

There are also observations that the Fed will engage verbally or substantively if market unrest continues this week as Treasury bond rates continue to rise. Even if Treasury bond yields jump, there will be a sense of caution about the Fed intervention.

▶If there are any economic indicators or events to watch out for?

First of all, attention is paid to the consumer price index (CPI, as of February) released on the 10th. Looking at the average of the experts in The Wall Street Journal, it was expected to increase by 0.2% compared to the previous year and 1.4% compared to the previous year. The impact of the stock price is likely to depend on how far away from these forecasts.

<주요 경제 지표>
-10th (Wed): Consumer price index for February (0.3% increase in January)
-11th (Thursday): Number of new weekly unemployment benefits claims
-12th (Fri): Producer price index in February (1.3% increase in January) / Michigan consumer attitude index in March (preliminary value, February was 76.8)

It is also worth keeping an eye on whether the European Central Bank (ECB) will come up with measures to curb rising interest rates at its monetary policy meeting on the 11th. If the ECB takes a policy response, expectations for the next FOMC (policy response) may increase.

The number of weekly new unemployment benefits claims released on the same day and the 12th Michigan Consumer Attitude Index (preliminary for March) are also indicators to watch. Last week, the number of claims for unemployment benefits was 745,000, higher than the previous week (736,000), but less than the market forecast (750,000).

▶ The Biden government’s super stimulus package passed the Senate.

The Senate passed a $1.9 trillion stimulus law on Saturday, as expected. However, since the bill to raise the minimum wage was omitted from the original bill, it must be passed to the House of Representatives and voted on. The House of Representatives plans to go into effect immediately after passing the bill on the 9th, signed by President Joe Biden.

54% of this stimulus package is allocated to individuals. 4% belongs to the enterprise. The rest is allocated to federal and local governments.

You can receive cash up to $1400 per adult and child in the U.S. There is an income standard, with an annual income of less than 80,000 dollars per person. Individuals eligible for unemployment benefits may receive an additional $300 per week of unemployment benefits. This application will continue through September 6th.

Separately, $14 billion was set aside to support the salaries of airline employees in crisis.

▶ Is the implementation of stimulus measures positive news for the stock market?

Massive stimulus measures have played a positive role in providing liquidity to the market. However, this time it took a long time to finalize the stimulus plan, and there is a side that was reflected in the stock price.

There is also mixed concern that if stimulus measures induce an economic recovery, government bond yields and inflation may rise. In this regard, CNBC described it as a double-edged sword.

There are also observations that the battle between technology stocks and financial and energy stocks will become more intense.

▶Is there a possibility that additional stimulus measures will be considered?

After passing the stimulus law, Senate leader Chuck Schumer said to a reporter question, “Is this the last stimulus?” “If the Americans need more help, we will come up with another bill.” It was interpreted to mean that if the corona crisis persists, additional stimulus measures could be made.

President Biden has already announced that he will come up with a $3 trillion worth of ultra-large infrastructure and research and development (R&D) investment plans. After the stimulus measures are implemented, there is a possibility that interest will shift to whether the discussion on infrastructure legislation will proceed immediately.

▶ U.S. vaccine distribution status.

The fact that the number of vaccinations is increasing rapidly is the’double-edged sword’, but it is close to good news. This is because it does not involve large fiscal deficits such as stimulus packages.

Currently, about 60 million people have been vaccinated at least once. It is about 18% of the total population. Since Pfizer and Modena followed by Johnson & Johnson vaccines were approved for urgent use, the vaccination rate is expected to increase gradually.

Thanks to this, more and more states are declaring economic resumption. Texas will start ‘100% economic resumption’ starting on the 10th. California, which has the largest population (40 million people), has announced that it will open various amusement parks and sports venues such as Disneyland from the 1st of next month. Arizona will resume in-person classes on or before the 15th of this month. Connecticut has decided to increase the capacity of restaurants, etc. to 100% starting on the 19th.

In the United States, the number of confirmed cases soared to 300,000 a day in January of this year, but the number of confirmed cases is currently only 50,000 to 60,000. It is the lowest level since October last year. More important, the number of deaths fell from 3000 to 4000 per day to the mid-1000 range.

▶ It seems that companies’ performance announcements are coming to an end.

Based on the S&P 500 companies, 95% of companies reported their results for the previous quarter. Notable companies that have not yet announced are software company Oracle and theater chain AMC Entertainment. Both companies will disclose their performance on the 10th.

<주요 기업 실적>
-9th (Tue): Dixsportingus
-10th (Wed): Oracle, AMC Entertainment, Adidas, Bumble, Express
-11th (Thursday): JD.com, Party City
-12th (Fri): Kirkland

New York = Correspondent Jae-Gil Cho [email protected]