To The Moon

As forecasted in my ytd post - In Investment, When In Doubt - Pause!, Mr Powell session with the House Financial Services was indeed anchored on the “interest rate” topic.

Fed Chair Jerome Powell affirmed that interest rates will continue to increase in his testimony.

With the cat out of the bag, US market reacted to Mr Powell’s remarks.

They did not like what they hear.

All 3 composite index fell:

• DJIA : -0.30% (-102.35 to 33,951.52).

• S&P 500 : -0.52% (-23.02 to 4,365.69).

• Nasdaq : -1.21% (-165.09 to 13,502.20). Worst performing index.

Fed's dot plot

Looking at the Fed’s latest dot plot, many believed an interest hike in as early as July seems plausible.

With a +0.25% adjustment, new terminal rate will range between 5.50% and 5.75%.

With one remaining session with Capitol Hill’s Senate Banking Committee, I wonder what else will Mr Powell be covering today that hasn't already been covered yesterday?

In a “surprise” turn of events, $Barclays PLC(BCS)$ Senior Auto analyst Dan Levy decided to turn on $Tesla Motors(TSLA)$, downgrading it to “Equal Weight” from “Overweight”.

At the same time, he “adjusted” its target price to $260.

He claimed the recent rally ignored near-term questions about Tesla’s fundamentals.

Although Tesla does not trade on fundamentals — it currently trades at a forward P/E of 80.

Levy does make some interesting points about where Tesla stock sits compared to only a month ago (see below).

Tesla past 1 month % increment

His main justifications:

(1) AI effect “of Tesla” may be overblown.

• It might be a “long-dated” opportunity for Tesla, not something that can be counted on right now to considerably boost its valuation. What if “autonomous driving” is not achieved; it remains a possibility?

(2) Tesla’s recent Supercharger deals & uncertain benefits.

• Its recent charging deals with Ford, GM, and Rivian are seen more as creating “marketing benefits” for Tesla. Any tangible gains again probably coming in the long term; just not now.

(3) How multiple expansion is really the “entirety of the rally.”

• Tesla’s near-term fundamentals haven’t changed.

• Other AI-related stocks have seen positive profit revisions that led to market cap increases, this is not the case for Tesla.

• Levy believes Tesla’s 2024 consensus EPS estimates are still too rosy and need to be brought down.

• Tesla’s margins are still “uncertain” given recent price cuts, though it is possible margins may have troughed.

• Finally, more price cuts may be necessary as Model 3 inventories look bloated, and increased Model Y production in Giga Austin and Berlin may necessitate further price reductions, again hurting margins.

• Do you think the Fed will hike interest rate in July by +0.25% ?

• Do you think what Barclay’s analyst Dan Levy said is true? I certainly think so!

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