Tesla Price Drops After Earnings
What is it?
Last week we mentioned Musk’s views on higher interest rates impacting those paying for Teslas. To meet demand, Tesla lowered the prices of their cars. Because of that and other data, investors chose to sell Tesla last week. The stock dropped nearly 10% on Thursday.
“The company reported first-quarter earnings on Wednesday that fell short of Wall Street’s expectations. Tesla’s recent price cuts weighed on profits as the electric vehicle maker reported quarterly gross margins of 19.3%, while Wall Street analysts had expected 20.7%.”*
Why does it matter?
For a while it seemed like large companies were unaffected by the harsh economic conditions. This shows that not all companies are immune to the tighter economy. Not long ago there was money being pushed into the system, but that came at a cost which individuals and companies are paying for now. The drop in Tesla’s stock spread to other EV (Electric Vehicle) companies and dampened the investor sentiment that day. If Tesla is cutting prices, then other companies may follow. That could negatively impact stock prices since values may be based on expected future earnings.
Looking Towards What is Next
What is it?
Last week was relatively calm with volatility remaining low.
“Cleveland Fed President Loretta Mester told Yahoo Finance on Thursday that interest rates need to rise above 5% given stubborn inflation. The comments came two days before Federal Reserve participants enter their blackout period prior to the next FOMC meeting on May 2.”**
We could see volatility pick up before the next Fed Meeting. If investors expect the Fed to raise rates higher still, it may cause more pessimism in the markets.
“Markets are currently pricing in an 84% chance of 25-basis-point rate hike at the next FOMC meeting, according to data from the CME group.”**
Why does it matter?
The Fed decision will be using the most up-to-date information they have at that time. One thing that could impact their decision is how the largest companies are doing. This week some of those companies will report on earnings. They have been propped up as safe investments lately, but that could change if the data is worse than expected.
“With the Fed in its quiet period, market focus will turn to big tech earnings. Apple (AAPL) Amazon (AMZN), Alphabet (GOOGL) and Meta (META) are all set to report first quarter results. On the economic front, the first look how the health of the U.S. economy in 2023 is expected, with the initial first quarter GDP report expected on Thursday.”**
That GDP number could impact the markets, especially if it is far off from what was expected.
“Through Friday, 18% of S&P 500 companies have reported first quarter results, with aggregate earnings of 5.8% coming in below the five (8.4%) and ten-year (6.4%) averages, according to Factset.”**
We will see if the low volatility continues as more earnings come out below (or above) the ten-year averages. Higher volatility typically sends stock prices lower as fear can be more prominent then.
Other articles we found interesting this week:
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*Josh Schafer. “Stocks edge lower, Tesla plummets 9%: Stock market news today”. 4/20/2023. Yahoo Finance. https://finance.yahoo.com/news/stock-market-news-today-live-updates-april-20-115343246.html
**Josh Schafer. “Stocks end week lower amid earnings, strong economic data: Stock market news today”. 4/21/2023. Yahoo Finance. https://finance.yahoo.com/news/stocks-end-week-lower-amid-earnings-strong-economic-data-stock-market-news-today-180717344.html
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