foxex: Tesla Comes up Short

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Dow Rallies ahead of Jobs Report. Tesla misses.

Markets Close

Dow
26,384.63 +0.64%

S&P
2,879.39 +0.21%

Nasdaq
7,891.78 -0.05%

VIX
13.58 -1.16%

INV Anxiety Index
99.09 Neutral

US 10-Yr Yield
2.512 -0.20%

Dow Rallies ahead of Jobs Report

The DJIA rallied .6% as investors anticipate a strong non-farm payrolls report for March, due out Friday AM. This will come on the heels of a better than expected weekly unemployment report today in the U.S. which showed the lowest levels of jobless claims since 1969. 202,000 Americans filed for unemployment last week.

Keep in mind, the unemployment claims is a weekly number, so the data can be noisy. The monthly non-farm payrolls report is a better gauge of the strength of the jobs market, but that too can be erratic as it was last month. Remember, February's non-farm payrolls report only showed an increase of 20,000 jobs added. We did have a government shutdown in January and a colder winter, by most measures, which muted construction employment. Economists are expecting 180,000 jobs to have been added in March, which is on par with the monthly average over the last couple of years. If we come in well below that, it will be a disturbing trend that will bring fresh recession worries with it. The U.S. Dollar continues to strengthen, as James will explain below, which is an indication that investors feel the numbers will be strong and stay strong through the year.

Trade Deal on the Clock

Chinese trade officials have been in Washington D.C. this week for negotiations and President Trump said this morning that he'll know in the next four weeks whether or not there will be a deal. There has been speculation that Trump will announce a summit date with China's President Xi if there has been sufficient progress made this week.

Tesla's Miss Brings out the Shorts

Tesla CEO Elon Musk spent the day in a Manhattan courtroom today where the Securities and Exchange Commission is asking a federal judge to hold him in contempt for violating a settlement deal reached last year that required he get pre-approval for social media posts about his company.

Quick Refresh: Musk has used his twitter account to take shots at the SEC, calling it a 'Shortseller Enrichment Commission', after the regulator fined him and stripped him of his Chairmanship over his infamous tweets about taking Tesla private at 420/share. He agreed to have his tweets monitored by Tesla's lawyers. Then, on February 19th, Musk tweeted that Tesla would make around 500,000 cars in 2019. A few hours later he walked that back and tweeted that the company will actually deliver 400,000 cars this year. Not only are those tweets in violation of Musk's agreement with the SEC, but he may have violated securities laws by making material statements about his company's economic projections that could influence the stock price. It did... but those may be the least of Musk's problems.

Fast forward to Wednesday evening, and Tesla reported first quarter 2019 production and delivery numbers that were far lower than the company's forecasts and targets.

In sum:

Tesla delivered 31% fewer vehicles than last quarter
50,900 Model 3's were delivered - fewer than forecast
12,100 Model S and X's were delivered - fewer than forecast
Tesla says its on track to deliver 300,000-400,000 total vehicles in 2019, but the first quarter results will make this a tough target to hit
Tesla says these results will impact its first quarter revenue and profit forecasts, but was not specific

Now What?

Musk's issues with the SEC are a side show to its bigger problem -- failing to hit sales targets despite promises made by its CEO. Investors don't take kindly to these antics, which is why Tesla is one of the most shorted stock on the S&P500, according to S3Partners, which tracks short-selling. Short-selling is when investors bet that the share price of a company will fall in the future, so they purchase an option to buy the stock at a lower price at a future date.

Shares of Tesla fell 8% today, which means anyone who bet Tesla would decline a few weeks or months ago, is making money. This chart from S3 shows the increase in short sales against the company's actual share price since the beginning of the year. This is not what you want to see if you are a long term investor in a company.

Crude Oil Prices top 5-Month High

This shouldn't come as a surprise given the production cuts by OPEC, Russia and the U.S., but what may be surprising are more signs of global demand despite fears of an economic slowdown. The economy is slowing around the world - no doubt about it. But it may be less extreme than many had anticipated. The manufacturing numbers out of China this week were very robust, and signs of a a trade deal coming to fruition should only amplify that.

Higher oil prices are a double-edged sword, however. While historically low given the last decade, as they creep towards $80 per barrel, they start to eat away at profit margins for transport companies, utilities, manufacturing firms, and consumers. It takes a bit for higher oil prices to make their way to the gas pump where consumers pay more for their fill-ups, but we are heading into the busiest driving season of the year. This could become a much bigger theme this summer.

Here is the last 10 years, charted by macrotrends.com:

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Chart of the Day: Dollar Near Long-Term Highs Ahead of Jobs Report

With the closely-watched U.S. jobs report for March up first thing Friday morning, dollar and bond traders are bracing for potential impact. As we approach the non-farm payrolls release, the U.S. dollar index (the primary value measure of the U.S. dollar against a basket of other major currencies) sits not far from long-term highs. The persistent strength of the dollar in the past several weeks and months has recently been a key macro market theme that has defied lowered interest rate expectations and increasing worries of a slowdown in U.S. economic growth. These growth worries were exacerbated last month when the February jobs report fell far short of expectations at only 20K jobs added against prior forecasts for 180K. More recently, though, positive global manufacturing data released early this week prompted some second thoughts about slowing growth concerns.

Friday's headline jobs number is expected to come in around 175K jobs added in March. A better-than-expected number on Friday morning could boost the dollar index back up towards 97.70-area resistance highs (recently tested in November, December, and March). Such lofty levels had not previously been seen since mid-2017. Another disappointing number, however, could signal a strong dollar retreat, much like the dismal jobs data last month prompted a strong pullback in the index. That pullback brought the U.S. dollar down sharply from the noted 97.70 highs to the sub-96.00 level. Whichever way the jobs data goes, expect heightened volatility for the dollar shortly before, during, and after the release.