The stock market recovery of 2020 might just be the biggest Fed liquidity disaster in the making. Since the stock market drop of mid-March 2020, the stock market has soared in a speculative distortion bubble. Fast forward 5 months and, suddenly, Apple is a $2 Trillion dollar company and Tesla’s stock is over $2,000.
- Tesla’s stock has increased 50% ever since announcing its stock split.
- A few technology companies have lifted the NASDAQ and S&P higher amid an unprecedented surge, even as a small
business apocalypse occurs and many other stocks have not recovered.
The question is do you want to participate in a stock market bubble? While Amazon, Apple, Tesla, Nvidia, Shopify and Zoom look good today, how will they look six months down the line?
Tesla is the one that has the most miles, the most data, probably one of the better systems and is at least 2 years ahead of the pack in battery technology. It’s a first mover, but all first movers eventually find competition ahead.
Tesla is what analysts call a “story stock”, that is, its valuation and fundamentals aren’t factored in how high it has come recently. It’s actually a very risky stock for that reason, especially while it’s still at a $2,000 price point (or $400 after the stock split).
The EV Hype Bubble is Peaking
Fueled by optimism ahead of a five-for-one stock split on Aug. 31, we are likely at the peak of the EV hype bubble, where other EV stocks like Nio have also seen an incredible gain. $NIO was $2.38 on March 19th and today on August 21st its price is $14.20 after what amounts to a government bailout saving the company.
Tesla bulls say the fundamentals on the company warrant an even higher valuation. They add that the stock’s hearty ascent in 2020 isn’t simply a speculative bubble. However in the years ahead the true EV market will manifest and Tesla’s market share is unlikely to keep gaining — even as it leads in consumer brand following and technological prowess. The margins won’t be that great since it’s still more like a manufacturing company than a tech company.
Tesla is the Leader of a Sentiment Bubble of EV Hype in 2020
- Tesla promises (according to Elon Musk) to be among the leaders of the autonomous driving revolution, but many analysts remain skeptical.
When the EV hype bubble bursts, Tesla won’t be worth more than Walmart, like it is today. Short sellers have been burned by Tesla this year, where short-sellers positions against Tesla are down $25.4 billion in year-to-date net of financing market-to-market losses, according to Friday data from financial analytics firm S3 Partners.
Meanwhile the 3 million plus users on Robinhood are all-in on Tesla. They will get burned badly as the stock market slowly becomes less distorted by the Fed liquidity and low interest rates.
Tesla’s stock price was $430 in March 2020. One could argue even that price will likely end up being overvalued. Today it’s nearly five times that price, but Tesla isn’t a stock that’s worth however many billions it is today. Outside of Apple, it’s likely the most dangerous stock on the market today. Apple’s stock has more than doubled since March as well, also surging after a stock split announcement.
Tesla’s stock price is insane because the market is severely distorted by a fake stock market recovery. This as the S&P has reached a record high in recent days. Even the Fed has warned the economic recovery won’t be V-shaped.
Tesla is now more valuable than Walmart, and its market cap is less than $20 billion away from overtaking Johnson & Johnson. Elon Musk has risen to 4th or 5th in global wealth, but it’s all likely due to a stock market bubble. What happens when people invest less in Apple, Amazon, Microsoft, Nividia and Tesla? The answer is the entire market would drop and keep dropping.
In 2020 year-to-date, Tesla has surged 378%. So it’s not a good time to invest in Tesla. Don’t be surprised if the stock plummets later in 2020. Tesla’s price today is $2,091 and it may be the worst day in its history to buy the stock.