Tesla's place among the so-called Magnificent 7 stocks is under serious threat. In fact, the group's role in the driving market higher is also at risk.
The electric-vehicle maker's first-quarter deliveries were pretty awful, missing estimates by a long way. But it's not a blip -- the stock has now fallen 33% this year, the S&P 500's second-worst performer in 2024 behind Humana. That's hardly magnificent.
The adjective's use to describe the other six is also looking more shaky -- for Apple in particular, which has dropped 12% this year. The Mag 7's outperformance began to fade in March as a market-cap-weighted composite index of the stocks rose 1.6% compared with the S&P 500's 3.1% jump.
The group's dominance has meant growth stocks have long outperformed value stocks but that, too, may be changing. The S&P 500 Value index has climbed 2.7% over the past month, while its Growth index counterpart is up just 0.2%.
The Federal Reserve may have something to do with that. Smaller cap stocks stand a better chance of benefiting from hopes that the central bank will soon cut borrowing costs. The Big Tech names were largely unscathed by the Fed's aggressive hiking campaign and similarly may not get as much of a boost from the cutting cycle.
The broader market may have the positive impact of rate cuts to look forward to, but the wait is becoming increasingly frustrating. Fed officials continue to display very little urgency over cutting rates, citing the need for more data.
That's not a new problem for markets, but it seems they can no longer rely on the Mag 7 -- and the artificial-intelligence boom -- to come to the rescue in the meantime.
-- Callum Keown
***
EV Maker's Disappointing Deliveries Have Analysts Fretting About Demand
Tesla's disappointing first-quarter delivery numbers have Wall Street wondering if there is a bigger issue at Elon Musk's electric-vehicle maker. A wider-than-expected 46,561 discrepancy between the number of Teslas produced and sold suggests there could be a serious demand issue, Deutsche Bank analyst Emmanuel Rosner said.
-- Tesla delivered 386,810 vehicles in the quarter, well below Street
estimates. Analysts called it "shockingly disappointing" and an
"unmitigated disaster." Tesla sees itself in the middle of two growth
waves -- the first with its Model Y and 3 vehicles, and the second with
its upcoming lower-priced Model 2.
-- Reviving growth won't be easy. Wedbush Securities analyst Dan Ives said
Musk has exacerbated things with side distractions, such as his comments
on building an AI company outside of Tesla, having his 2018 pay package
litigated in a Delaware court, and asking shareholders to vote on moving
Tesla to Texas.
-- Tesla investor Gary Black of the Future Fund Active ETF wants the company
to start advertising to boost sales. Early EV adopters are long gone, and
so are the days when Tesla could sell vehicles with no ads, he said,
creating the need for an Apple-like strategy to entice consumers.
-- Tesla stock's 4.9% drop on Tuesday wiped out about $6 billion in the
value of Musk's stake, combining stock and options. Musk is still one of
the world's richest people, ranking third on the Bloomberg Billionaires
Index, with a net worth of $189 billion as of April 1.
What's Next: Investors want Tesla to accelerate the move toward its Model 2 program, which currently isn't slated to arrive until late 2025. The new vehicle will compete with several all-battery vehicles priced below $30,000 from China's BYD, Xiaomi, and others.
-- Al Root and Janet H. Cho
***
Fed Officials Question Rate-Cut Urgency, Citing Need for Data
Cleveland Federal Reserve President Loretta Mester said more evidence is needed to confirm that inflation is still on track to decline in 2024 toward its 2% target, and that she's unlikely to have that confidence by the Fed's May meeting. That comment cast doubts on the timing of interest-rate cuts.
-- Traders aren't expecting a cut in May, either. Prices for interest-rate
futures imply a nearly 60% probability of a quarter-point decrease at the
Fed's June meeting, and the greatest likelihood of a total 0.75
percentage-point reduction in 2024.
-- The Fed has made substantial progress on bringing the rate of inflation
down since its 2022 peak, but it remains above target. Mester told a
gathering of business leaders in Cleveland that the disinflation process
won't be a smooth path back to 2%.
-- San Francisco Fed President Mary Daly cautioned about keeping rates high
for too long. Policymakers must try to create a durable expansion without
triggering a recession, she said in Las Vegas. With the labor market
still strong and no urgency to adjust the rate, standing pat is the right
policy at the moment, she added.
-- Mester last month changed her forecast of the long-run fed-funds rate to
3%, from 2.5%. Daly said that three quarter-point cuts in 2024 matches
her base case should the economy evolve as expected, but that she could
adjust her assumptions based on the data.
What's Next: Mester sees better 2024 economic growth than before, based on the strong start to the year, forward-looking data, and anecdotes from businesses and individuals in her district. Growth will moderate, but gross domestic product will still increase at an above-average pace in 2024, she said.
-- Nicholas Jasinski and Janet H. Cho
***
Taiwan Rocked By Deadly Earthquake. Chip Stocks Fall.
Taiwan's biggest earthquake in 25 years, on Wednesday morning local time, has killed at least seven people and injured more than 700. It occurred just off the eastern coast of the island and while a tsunami warning was issued in Japan it was later lifted. The earthquake also caused a selloff in the country's semiconductor stocks.
-- Shares of Taiwan Semiconductor Manufacturing, one of the biggest makers
of chips in the world and a major supplier to Apple and Nvidia, fell on
the day. The company said it evacuated factories after the quake but
workers are now returning.
-- The Fubon FTSE TWSE Taiwan 50 ETF exchange-traded fund closed 0.4% lower
in Taiwan. American depositary receipts of ASE Technology Holding and
United Microelectronics also slipped early.
-- Beyond the destruction it caused, the earthquake is the latest threat to
global supply chains following the bridge accident in Baltimore last week
that closed a major U.S. port.
-- Separately, TMSC's rival chip maker Intel said operating losses in its
chip manufacturing arm should peak this year, with the business expected
to reach break-even in 2027. Its new disclosures show that its Foundry
segment lost $7 billion in 2023, widening from a loss of $5.2 billion in
2022.
What's Next: The disaster wasn't as bad as the 1999 earthquake that killed more than 2,000 people, but it may add to pressure on companies trying to shift production out of Taiwan to diversify supply chains as the U.S. and China impose restrictions on exports.
-- Brian Swint
***
Hollywood's Endeavor Group Returning to Private Realm
Three years after its IPO, the talent agency and entertainment company Endeavor Group Holdings is returning to the private realm. Its biggest investor, the private-equity firm Silver Lake, is buying the part it doesn't already own in a deal that values Endeavor at $13 billion.
-- Silver Lake called it the largest private equity take-private in more
than a decade and the largest in the media and entertainment sector.
Endeavor is run by superagent Ari Emanuel, who bought up several talent
agencies and sports entertainment companies in the past few years.
Endeavor went public in 2021.
-- Endeavor started a strategic review last fall, indicating it was thinking
about going private. Silver Lake is paying $27.50 a share in cash. But
its sports operation TKO Group Holdings, which includes the wrestling and
martial arts brands WWE and the Ultimate Fighting Championship, will
remain a publicly traded company.
-- Emanuel's acquisition spree was designed to diversify beyond the
representation business. Endeavor's umbrella also includes the talent
agencies WME and IMG, the Professional Bull Riders league, sportsbook
technology firm OpenBet, streaming platforms, and live event production.
It had nearly $6 billion in revenue in 2023.
-- A dispute with the Writers Guild of America forced it out of the content
production business. Endeavor also can't get lucrative packaging fees for
TV series and movies that include a significant number of WME clients,
The Wall Street Journal reported.
What's Next: Silver Lake's deal isn't subject to financing conditions or stockholder approvals, and the companies expect the transaction to close by the end of the first quarter of 2025.
-- Janet H. Cho and Angela Palumbo
***
Cal-Maine Halts Egg Production at Texas Plant Citing Bird Flu
(MORE TO FOLLOW) Dow Jones Newswires
April 03, 2024 06:38 ET (10:38 GMT)
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