US Market Not Awakened by Tesla's Gains.
Objectively, US market is still “down” for the week (based on past 5 days performances).
There isn’t really a single salient reason to account for the poor showings.
The only consolation, heading into last trading day of the week (Friday) is the market recovered marginally.
By the time it was 4pm: (see above)
DJIA : -0.33% (-140.59 to 42,374.36). Extended thursday loss as the index’s component stock $IBM(IBM)$ shed over -6.0%, following Q3 2024 revenue miss.
S&P 500: +0.21% (+12.44 to 5,809.86).
Nasdaq: +0.76% (+138.83 to 18,415.49).
Although there are no strong indicators to explain US market weak performances, there are two economic reports that (I believed) helped buffer the market on thursday.
The two reports were :
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S&P Global Flash US composite PMI.
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US weekly jobless claims.
S&P Global Flash US Composite PMI.
This is the preliminary reading for the index, with the final reading on 6 Nov 2024.
The index rose to 54.3 in October 2024.
This is up from September’s 54.0, signaling solid business activity growth at the start of Q4 2024.
Expansion was driven by the service sector with PMI coming in @ 55.3.
Meanwhile manufacturing output contracted for the 3rd consecutive month with PMI coming in @ 47.8.
Employment also fell slightly for the 3rd month, reflecting uncertainty ahead of the Presidential Election.
Confidence in the year ahead improved after a sharp drop in September, as businesses expected more stability post-election.
The survey also showed slower inflation for input costs & prices charged, with service sector inflation cooling significantly.
US Weekly Jobless Claims.
Weekly jobless claims unexpectedly fell last week in a sign that turnover in the labor market remains low. (see above)
For week ending 19 Oct 2024,
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Department of Labor showed that 227,000 initial jobless claims were filed.
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This has fallen by 15,000 (or -6.2%) when compared to the week prior’s 242,000 claims.
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As per Bloomberg data, it is also below economists expected 242,000.
Thursday's data shows claims have reversed an upward trend seen in September that had brought the metric to its highest levels in more than a year.
Overall, economists believe the move lower in weekly jobless claims in part reflects a recovery from recent weather disruptions in the data.
The declining claims falls in line with other labor reports, that is while “hiring & quit” rates have fallen in 2024, leading to low worker turnover - layoffs aren't happening at an alarming rate to economists.
A similar narrative was revealed in the Fed's October Beige Book out on Wed, 23 Oct 2024, that surveys firms within the central bank's 12 districts.
Lastly, this report come ahead of a key week for labour report leading into the Fed's FOMC Nov 6-7 meeting.
Week beginning 27 Oct 2024, will bring updates on job openings (jolts), as well as quits and hiring rate, before the crucial October US Non-Farm payroll (report) on Fri, 01 Nov 2024.
Tesla Q3 2024 Earnings.
$Tesla Motors(TSLA)$ reported its Q3 earnings on Wed, 23 October 2024 after the market has closed for trading.
When it resumed trading on Thu, 24 Oct 2024 it rocketed higher on the back of several positive disclosures from the EV maker.
Based on a survey of analysts by LSEG:
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Earnings per share: increased by +9.0% YoY to $0.72 adjusted vs. $0.58 cents expected vs $0.66 (Q3 2023).
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Revenue: increased by +8% YoY to $25.18 billion vs. $25.37 billion expected vs $23.35 (Q3 2023).
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Net income: rose by +17.3% YoY to approx. $2.17 billion from a year ago.
Revenue Breakdown Analysis.
(1) Automotive.
Revenue increased +2% to $20 billion from $19.63 billion in the same period a year earlier. Actually if one looks close, one will find that it is about flat since late 2022.
(2) Energy generation & storage.
Revenue soared +52% to $2.38 billion.
(3) Services & other.
Revenue, that includes revenue from non-warranty repairs of Tesla vehicles, jumped +29% to $2.79 billion.
Tesla made more money last quarter from car repairs and charging stations than expected.
It is ironical because back in 2016, Mr CEO proclaimed that Tesla would not make money from these services, unlike carmakers like $General Motors(GM)$.
His tagline of “the best service is no service” had failed miserably.
It is the other 2 revenue streams that are contributing “more” to Tesla’s top line.
Separately, I have tallied up all 19 quarters (Q1 2020 to Q3 2024) of revenues to derive the meridian average, that came up to 14.52 (cyan horizontal line).
This shows the contributions’ proportions more clearly.
At the end of the day, it was the improvement in Tesla’s profit margin that helped save the day. (see above)
Tesla grew adjusted EBITDA margins for the first time in more than a year. Earnings surprised to the upside too.
Tesla’s widely watched gross profit margin (percentage of revenue it gets to keep after expenses), rose to 19.8%,
It is the highest in a year, but still smaller than its peak of 29.1% attained in Q1 2022.
Tesla’s revenue from automotive would not have bode well had margin remained at the 14% percentile.
Outlook.
On Tesla’s outlook for 2025, it is no surprise that Mr CEO has decided to paint an overly promising picture during the earning’s conference.
The “over the top” promises include: (see below)
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20% to 30% vehicle sales growth for 2025.
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Roll out of a lower-cost EV by H1 2025.
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Promise of ride-hailing robotaxis in Texas, California and perhaps more states by 2025.
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Revival of a "spectacular" Roadster, Tesla’s first EV that rolled off production that was the brainchild of Tesla’s 2 original founders - Martin Eberhard & Marc Tarpenning.
Stock Price Movement.
Tesla had the best day in the market on Thu, 24 Oct 2024.
It ended nearly +22% higher, adding tens of billions of dollars to the company's market valuation since 2013. This was up +17.3% from a year ago.
Based on Tesla’s thursday closing, shares are trading at 72.75x (its 12-month forward earnings estimates), compared with 5.94x for legacy automaker like $Ford(F)$ and 30.79x for technology giant like $Microsoft(MSFT)$.
The strong performance changed the trajectory for Tesla, that had seen sales and profits decline in the first two quarters.
Tesla is an expensive and volatile “meme” stock. Institution & retail investors will buy it for quick gains. Buy the rumours, sell the news and investors should be fine, no?
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Do you think US market will be able to end October on a high by next Thursday ?
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Do you think Tesla has found its long-lost mojo again ?
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Both SP 500 and NASDAQ seem to break ATH today,
good economics data with conflict-free world ensures high stock market gains
Maybe the market is waiting for more tech gains next week 😄
Can Tsla go further next week?
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