Tesla Shares Plummet Despite Continued Confidence from Ark Innovation

Markets brace for earnings season as interest-rate-cut expectations diminish

• Stocks Inch up on Friday, but weekly losses persist amid heightened market volatility.
• Tesla shares dive despite Ark Innovation's continued confidence.
• Modest Friday gains fail to offset weekly losses.

Stock markets experienced modest gains on Friday, with the S&P 500 closing 1.11% higher and the Nasdaq Composite up by 1.24%. However, these gains were insufficient to overturn the losses suffered earlier in the week, resulting in both indices closing lower overall.  

The S&P declined by 1% while the Nasdaq fell by 0.8%. Volatility, measured by the VIX, ended the week at 16.03, marking a significant 23% increase. This surge in volatility is likely attributable to the stronger-than-expected jobs report released on Friday, anticipation surrounding upcoming economic data, and the commencement of earnings season. 

In the previous week, certain commodities witnessed robust rallies. Gold continued its upward trend, closing with a 5% increase. Concurrently, oil prices surged by 4% amid escalating tensions in the Middle East. In premarket trading, gold saw a slight uptick of 0.5%, while oil experienced a marginal decrease. 

Tesla falls 6%+ 

Among individual stocks, Tesla (TSLA) garnered attention as its shares plummeted over 6% following disappointing delivery numbers. Nevertheless, this downturn didn't deter investor confidence, particularly exemplified by Cathy Wood's Ark Innovation, which reportedly acquired 2.3 million Tesla shares since December, making it the fund's second-largest holding at 9.6%. 

Taiwan Semiconductor (TSMC) shares demonstrated a slight increase in premarket trading. Reports suggest that the Biden administration is poised to provide the chip manufacturer with $6.6 billion in federal grants in exchange for a commitment to invest $25 billion in establishing a third manufacturing facility in Arizona. 

Conversely, Boeing (BA) witnessed a decline in its stock price after a flight departing from Denver bound for Houston had to return due to an engine cover detachment, which struck one of the plane's wings. Fortunately, the plane safely returned to the airport, and passengers were rebooked on alternative flights. 

In merger news, Johnson & Johnson (JNJ) announced its acquisition of Shockwave Medical for $13.1 billion or $335 per share. Additionally, Google parent company Alphabet (GOOG) is reportedly considering acquiring online marketing software company HubSpot (HUBS), which holds a market valuation of $35 billion. However, any such acquisition by Alphabet is likely to face regulatory scrutiny due to the substantial size of both companies. 

Data releases incoming 

As we enter the second week of April, markets are bracing for a slew of new data releases in the forthcoming weeks.  

Apart from regular economic indicators, the second-quarter earnings season is set to commence, with banks scheduled to initiate proceedings. The recent economic data continues to indicate a robust economy, which could disappoint investors anticipating multiple interest rate cuts this year.  

Market expectations have shifted from projecting as many as five rate cuts to as few as two or even none, underscoring the strength of the economy. Consequently, the focus now turns to strong earnings growth to sustain market momentum. 

Consensus estimates anticipate a 9.4% earnings growth this quarter, with the S&P's 12-month forward-looking P/E ratio currently standing at 20.5, surpassing its ten-year average. Notably, Nvidia, with its substantial year-to-date stock appreciation of 78%, is poised to be closely monitored during this earnings season, with any indication of a slowdown potentially impacting the broader market. 

Traders await CPI and PPI  

Before delving into earnings season, market participants await the release of consumer price index (CPI) and producer price index (PPI) data. CPI is expected to rise by 0.3% month-over-month and 3.4% year-over-year, while core CPI, excluding volatile food and energy prices, is forecasted to increase by 0.3% month-over-month and 3.7% year-over-year. The PPI release is scheduled for Thursday. 

In premarket trading, bonds experienced a nearly 1% decline, driving the yield on the benchmark 10-year note to 4.46%, its highest level since November. This reinforces the market's belief that interest rates are unlikely to see significant reductions soon, underscoring the importance of robust earnings to sustain market momentum. As always, adhering to investment plans and long-term objectives remains prudent in navigating market fluctuations. 
 
JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.