Tesla plunge wipes out $90B in a week
The rout in Tesla shares this week has far exceeded the broader market’s decline and already wiped out nearly $90 billion from the electricvehicle maker’s valuation.
To put that loss in perspective, consider that it exceeds the entire individual market capitalizations of about fourfifths of companies in the S&P 500. Tesla’s shares fell below the $600 mark on Friday, plunging to their lowest since Dec. 10. The stock has now lost 17% of its value just this week, extending its 2021 drop to 20%.
The surge that helped propel the Elon Musk-led company into the ranks of the S&P 500 in 2020 has turned into a steep decline this year amid a greater push from legacy automakers into electric vehicles. Traditional industry bigwigs including General Motors Co., Ford Motor Co., Volkswagen AG have all in recent months announced their EV lineups and the intent to aggressively expand into the nascent market.
Tesla’s lofty valuation also took a hit from a broader sell-off in high-multiple technology stocks this week. Investors ditched the group amid a rise in Treasury yields, leading to concerns that companies trading at high valuations may not perform up to expectations if borrowing costs surge.
The EV industry leader was among the top decliners in both the Nasdaq 100 Stock Index, as well as the S&P 500 Index.
Tesla’s current market capitalization stands at around $552 billion, a far cry from the high of $837 billion it reached in late January.
Smaller EV startups also followed into Tesla’s lead on Friday. Major decliners in the group included Lordstown Motors Corp., Nio Inc., Workhorse Group Inc., XPeng Inc., as well as some of the blanck check companies awaiting merger with electric car makers, such as Churchill Capital Corp. IV and Northern Genesis Acquisition Corp.
Tech rebound pulling stocks out of a slump
Wall Street capped a volatile day of trading Friday with a broad rally that snapped the market’s threeday losing streak.
The S&P 500 gained 2% or 73.47 points to 3,841.94. The Dow Jones Industrial Average gained 572.16 points, or 1.9%, to 31,496.30. Earlier, it had been down
157 points. The Nasdaq composite climbed 196.68 points, or 1.6%, to 12,920.15. The tech-heavy index earlier flipped between a gain of 1.2% and a loss of 2.6%.
Smaller company stocks outgained the broader market, as they have all year. The Russell 2000 index picked up 45.29 points, or 2.1%, to 2,192.21.
Encouraging hiring news on Friday helped lift Treasury yields, with the closely watched 10-year yield momentarily topping 1.60%.
The yield later fell back from that midday spike and wound up at 1.56%, only slightly higher than a day earlier.
It remains well above its roughly 0.90% level at the end of last year.
Economists have been upgrading their forecasts for this year as more people get COVID-19 vaccines, businesses reopen and Congress gets closer to pumping another $1.9 trillion of financial aid into the economy.
The worry is that inflation could take off, or something else could happen to jack yields up even further.
It’s the speed at which Treasury yields have climbed that has gotten Wall Street so uncomfortable, more than the actual level, which is still low relative to history.
Energy producers made some of the largest gains on Friday. Diamondback Energy jumped 4.9%, and Chevron gained 4.3% after the price of U.S. crude oil rallied 3.5%.
Tech stocks would likely also see some improvement in their profits, just not to the same degree as companies whose businesses are closely tied to the strength of the economy, such as banks or travel companies.
But Big Tech stocks have grown so big that their movements can mask what’s going on in the broad market.
Five Big Tech stocks alone make up more than 21% of the S&P 500 by market value, so weakness for tech can hold back S&P 500 index funds even if many stocks within it are rising.