Tesla’s quarterly earnings rebound may teach us something about mega-cap growth names
This is CNBC Senior Markets Commentator Mike Santoli’s daily blog with insights into market trends, stocks and statistics. The economy ended 2022 in strong enough shape to undermine claims of an impending collapse, but not so strong that the “long and variable lags” camp predicting an almost inevitable recession to come will be persuaded otherwise. The failure of the economy to falter in time to quickly redeem the faith of staunch bears helped drive a temporarily reassuring cyclical bounce in the market. Consumer finance companies surged this month. Steel and machinery inventories hit new highs. Consumer discretionary has beaten commodities by 15 percentage points since the middle of last year. Yet we have the dramatically inverted yield curve, the frightening declines in the ISM and leading economic index, and a continued corporate focus on streamlining that could, perhaps, lead to a deeper pullback. This leaves the market stable but at a crossroads. Some elements of bull market behavior kicked in: The rally was broad. Some momentum signals have been triggered. Cyclical and high beta leadership is surfacing. Dips can be bought. A classic “weak October/mid-term election year/strong January” pattern is in place. On the other hand, we’ve used a lot of good news (potential Federal Reserve pause, lower bond yields, lower US dollar) just to bring the S&P 500 back to a familiar resistance point, so those who think the market will be capped or vulnerable have still not been proven wrong. Back to the theme of hard economic data (production, employment, spending) looking better than soft indicators (business surveys, consumer sentiment): Goldman Sachs is breaking it down and giving more credence to the more encouraging hard data. Tesla bounces back on respectable results and reassuring guidance takes some starch off the bearish case, but the nature and magnitude of the rebound – a 9% return to a level that’s half where it was trading a year ago – shows that the stock is a little less “special” and more normal than it has ever been. We discuss what to pay for $4 on EPS this year and whether it can reach $6 next time, whether the 1.8 million vehicle forecast is solid or perhaps has an edge. It’s not about auxiliary businesses of hope and prayer, world domination and robot taxis. That doesn’t make TSLA a buy or sell per se, but it’s an extreme example of what’s happened before in mega-cap growth technology: resetting valuations and projections to far more a year of price and earnings compression and declining earnings expectations. It’s still doubtful if the Nasdaq 100-like names are the leaders of the next bull market, but it’s enough for now if they stop shooting the indices daily and some start looking like relative bargains. . The scope of the market is very heterogeneous. VIX sleepy at 19. With personal consumer spending inflation and the Fed meeting coming up, we’ll see if the sustaining pattern action takes hold.