Tesla Warns of Sales Slowdown; Market Reacts
Tesla (NASDAQ:TSLA), the first of the so-called ‘Magnificent Seven’ U.S. megacap stocks to report fourth-quarter earnings, faced a setback overnight, dampening an otherwise optimistic economic outlook for the new year. Despite a packed schedule of events on Thursday, including the first U.S. GDP readout for Q4 and the European Central Bank’s policy decision, individual stock movements took center stage.
Last week, chipmakers ASML (AS:ASML) and TSMC released positive updates and outlooks, which boded well for Intel’s (NASDAQ:INTC) report later that day. Additionally, streaming giant Netflix (NASDAQ:NFLX) saw its stock soar over 10% to two-year highs on Wednesday, driven by impressive subscriber numbers. However, Tesla’s stock fell another 8% due to concerns over supply chain issues and increased competition from Chinese automakers.
Tesla CEO Elon Musk’s comments about the competitive threat from China added to market worries. He said, “If there are no trade barriers established, they (Chinese automakers) will pretty much demolish most other car companies in the world.” This sentiment resonated amid the ongoing U.S.-China political tensions.
Amidst efforts by Chinese authorities to stabilize their economy and investor sentiment, the repercussions of the political rift between the U.S. and China were felt beyond their borders. Apple (NASDAQ:AAPL) reported a 2.1% decline in smartphone shipments in China during the final quarter of 2023, primarily due to intensified competition from local rivals, led by Huawei.
ECB Policy Decision and Federal Reserve’s Next Move
Turning to macro markets, the European Central Bank (ECB) is expected to maintain its policy stance after recent remarks from central bankers downplayed the possibility of an early easing. However, money markets still indicate a more than 50% chance of an ECB rate cut by April and anticipate a 125 basis point easing by the end of the year. The euro edged slightly higher against the dollar in anticipation of the ECB decision.
The Federal Reserve’s next meeting is scheduled for the following week, and it is also expected to hold the line. However, market expectations suggest a rate cut could occur by May 1. In a notable move, the Fed plans to end emergency funding rates introduced during last year’s regional bank crisis, signaling confidence in the banking sector’s recovery. Consequently, U.S. lenders will no longer have the profitable arbitrage opportunity they have enjoyed.
Financial markets showed volatility on Wednesday due to various factors, including robust January business surveys, a resurgence in U.S. crude oil prices, and a poorly-received 5-year note auction. As a result, Treasury yields experienced a slight increase.
Key Market Events for Today
The market will closely monitor several key events that could influence U.S. markets throughout the day, including:
- European Central Bank policy decision and press conference
- U.S. corporate earnings reports: Intel, Blackstone (NYSE:BX), Capital One, Visa (NYSE:V), Dow, Comcast (NASDAQ:CMCSA), Union Pacific (NYSE:UNP), Northrop Grumman (NYSE:NOC), Weyerhauser, American Airlines (NASDAQ:AAL), Southwest Airlines (NYSE:LUV), Marsh & McLennan, McCormick (NYSE:MKC), Valero, Nextera, Sherwin-Williams (NYSE:SHW), Western Digital (NASDAQ:WDC), etc.
- U.S. Q4 GDP and PCE estimates, Dec durable goods orders, Dec wholesale/retail inventories, Dec new home sales, Dec international trade, weekly jobless claims, Kansas City Fed Jan business survey, Chicago Fed Dec activity index
- U.S. Treasury auctions of 7-year notes, sale of 4-week bills
Conclusion
In summary, Tesla’s disappointing sales forecast weighed on market sentiment. While positive developments in the chip industry boosted investor confidence, concerns over supply chain challenges and escalating competition from China continue to impact the markets. As major central banks like the ECB and the Federal Reserve maintain their current policies, the focus turns to economic indicators and company earnings reports, which will play a crucial role in shaping market dynamics in the coming days.