S&P 500 (SPY) Dives To 3635 As Initial Jobless Claims Decline

Key Insights

  • S&P 500 found itself under pressure after the release of Initial Jobless Claims report.
  • Auto stocks are losing ground as traders react to the disappointing report from CarMax. 
  • A move below the support at 3635 will open the way to the test of the next support level at 3600.

Traders Worry About Hawkish Fed

S&P 500 is down by more than 2% in today’s trading session as traders react to the better-than-expected Initial Jobless Claims report.

The report indicated that 193,000 Americans filed for unemployment benefits in a week, compared to analyst consensus of 215,000. The Fed has previously stated that job market remained too tight. The report confirmed that the job market was in good shape. This is bearish for stocks as the Fed is forced to raise rates aggressively to cool demand and fight inflation.

Auto stocks found themselves under pressure after CarMax report missed analyst estimates on both earnings and revenue. The stock is down by 23% in today’s trading session. Tesla, General Motors, and Ford are down by 5-6% as traders fear that rising loan rates have started to put pressure on demand for vehicles.

Tech stocks have also moved lower today, which is not surprising as the market prepares for higher interest rates. AMD, NVIDIA, and Apple were among the biggest losers in this market segment today.

The current sell-off is broad, and even energy stocks are under pressure despite the rebound in oil markets. The market views Fed’s actions as the biggest danger for stocks, so any news that signal that Fed will continue to raise rates aggressively lead to a sell-off.

S&P 500 Tests Support At 3635

S&P 500

S&P 500 continues its attempts to settle below the support level at 3635. RSI is close to the oversold territory, but there is enough room to gain additional downside momentum in case the right catalysts emerge.

If S&P 500 settles below 3635, it will move towards the next support level at 3600. A successful test of this level will push S&P 500 towards the support at 3580.

On the upside, the previous support at 3660 will serve as the first resistance level for S&P 500. In case S&P 500 climbs back above this level, it will head towards the next resistance at 3700. A move above 3700 will open the way to the test of the resistance at 3725.

For a look at all of today’s economic events, check out our economic calendar.

Best Automotive Stocks To Buy In June

Key Insights

  • Automotive stocks have started to recover after a lengthy pullback. 
  • Analyst estimates have been moving lower in recent weeks, but the pace of this decline was modest. 
  • Ford and General Motors are trading at roughly 6 forward P/E, which could attract value-oriented investors. 

Several automotive stocks have managed to find support in May and are trying to gain upside momentum as traders and investors are attracted by their cheap valuation levels.

Ford

Ford stock had a tough year as it has found itself under pressure in mid-January after touching multi-year highs. At this point, the stock is down by almost 50% from these highs.

Analyst estimates have been moving lower in recent months, but their decline was not as dramatic as the decline in Ford’s stock price. Currently, the company is expected to report earnings of $1.93 per share in 2022 and $2.16 per share in 2023, so the stock is trading at just 6 forward P/E.

While the markets are worried about the health of the economy in the second half of this year, Ford stock is trading at attractive valuation levels and could attract speculative traders who are willing to bet that concerns are overblown.

General Motors

The situation is similar in General Motors‘ case. Analyst estimates have moved lower in recent weeks, and the company is expected to report earnings of $6.73 per share in the next year.

Just like Ford, the stock is trading at roughly 6 forward P/E, so the market remains sceptical about the potential performance of legacy automakers.

However, it remains to be seen whether General Motors stock will continue to trade at such levels in case earnings estimates stabilize. In addition, traders who are worried about rising interest rates could provide additional support to low-PE stocks like General Motors.

To keep up with the latest earnings updates, visit our earnings calendar.

Best Automotive Stocks To Buy Now

Key Insights

  • Automotive stocks haven been under pressure since the start of this year. 
  • Shares of legacy automakers have declined to attractive levels. 
  • Current problems may have been already priced in by the market. 

Automotive stocks have been moving lower in recent months. Legacy automakers, speculative EV stocks like NIO and Rivian, and even Tesla found themselves under pressure due to worries about supply chain problems and the negative impact of rising commodity prices. This pullback has pushed the stocks of legacy automakers to attractive levels.

General Motors

General Motors has recently released its first-quarter report. The company reported revenue of $35.98 billion and adjusted earnings of $2.09 per share, missing analyst estimates on revenue and beating them on earnings.

The report did not provide much support to the stock, which continued to trade near yearly lows due to general market sentiment.

Analysts expect that General Motors will report earnings of $6.89 per share in the current year and earnings of $6.88 per share in the next year, so the stock is trading at less than 6 forward P/E.

While analysts do not expect that General Motors will be able to grow its profits in the near term, current valuation levels look attractive.

Ford

Ford has also released its quarterly results this week. The market’s reaction was negative, and the stock slipped to yearly lows.

Ford is also valued at less than 6 forward P/E, so the market is somewhat skeptical about the near-term financial performance of legacy automakers.

However, there is room for multiple expansion, as higher interest rates will likely force investors to search for cheap companies with solid fundamentals.

Inflation and supply chain problems will remain the key bearish catalysts for Ford and other automotive stocks, but these problems may have been already priced in by the market.

For a look at all of today’s economic events, check out our economic calendar.

General Motors Stuck in Major Downtrend

General Motors Corp. (GM) hit a 14-month low two weeks ago and turned higher but buying interest since that time has been weak, lacking the enthusiasm that characterized the automaker’s run to new highs in 2020 and 2021. Supply chain disruptions, world events, and an EV timeline that won’t translate into meaningful profits for years have all contributed to this breakdown in bullish sentiment, which has dumped the stock’s two-year return into negative numbers.

Tough Environment for Automakers

GM depends on globalization and free markets to compete around the world but rising tensions are making it harder to grow international venues. In addition, the business of electric vehicles is requiring an enormous investment of time and resources, lowering earnings-per-share estimates through 2023. Adding insult to injury, soaring inflation is forcing automakers to raise sticker prices, which may lower demand at the same time that profit margins get squeezed.

Nomura Securities analyst Anindya Das summed up broad challenges in recent commentary, noting “we now expect GM to largely recover from the semiconductor chip shortages by 3Q22, vs. our prior belief that this would happen by 2Q22. Against this backdrop, and also based on GM’s commentary at the 4Q21 results briefing, we now expect it to reinvest cash into building its EV and AV (Cruise) businesses, while dialing back on shareholder returns. We think this is a prudent strategy, although it caps the outlook for near-term shareholder returns”.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated in the last three months, dropping to an ‘Overweight’ rating based upon 15 ‘Buy’, 3 ‘Overweight’, and 6 ‘Hold’ recommendations. Price targets currently range from a low of $44 to a Street-high $100 while the stock is set to open Monday’s session on top of the low target. This placement may limit short-term downside but the long-term prognosis is bearish, given major distribution and other broken technical readings.

General Motors broke out above the 2017 high in the 40s in January 2021 and topped out in the 60s just three months later. The stock sold off after failed June, November, and January 2021 breakout attempts, completing a double top breakdown in February when it undercut the August low at 47.07. Bears will control the ticker tape unless this critical level is remounted, raising odds for a secular decline that retraces a sizeable portion of the gains posted since March 2020.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Wrong Time to Buy General Motors

General Motors Co. (GM) is testing two-week support in the low 50s nearly one week after beating Q4 earnings estimates by $0.20 per-share, missing revenue expectations, and posting inline fiscal year 2022 guidance. Quarterly revenue fell 10.5% year-over-year to $33.58 billion, more than $600 million under consensus. The world’s third largest auto manufacturer reported strong demand for electric vehicles, with excellent reception for the new GMC HUMMER EV pick-up.

Supply Disruptions Coming to an End?

GM sees the light at the end of the tunnel of supply chain disruptions, expecting normal conditions to return in the second half of this year. Many folks are withholding purchases of new vehicles due to skyrocketing prices and it’s hoped that greater supply will sharply increase inventories, allowing the company to slash prices or provide new cash incentives. However, demand has probably eased in the last year, with rising inflation and the end of government stimulus cutting into consumer buying power.

CEO Mary Barra pounded the tables last week during a CNBC interview, noting that General Motors has seen a 25 – 30% improvement in semiconductor supply. She believes that supplies will be “back to normal” by the “second half of the year”, but that’s exactly what manufacturers were predicting a year ago at this time. She also revealed the company is prepared to offer more affordable electric vehicles but provided few details on pricing.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Buy’ rating based upon 16 ‘Buy’, 3 ‘Overweight’, and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $53 to a Street-high $100 while the stock is set to open Monday’s session nearly $2 below the low target. This disconnect with Main Street highlights skepticism about supply chain disruptions and the ramp-up in electric vehicle production.

General Motors mounted 2017 resistance in the mid-40s in January 2021 and surged into the mid-60s in April. Three breakout attempts into January 2022 failed, giving way to aggressive selling pressure that dropped the stock to a five-month low about two weeks ago. Accumulation has now fallen to the lowest low since August 2020, when GM was trading in the mid-20s. Taken together with bearish monthly signals, the stock could now test long-term support at the 2021 breakout level.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

General Motors Could Rally After Earnings

General Motors Co. (GM) reports Q4 2021 results after Tuesday’s closing bell, with analysts looking for a profit of $1.15 per-share on $34.24 billion in revenue. If met, earnings-per-share (EPS) will mark a 40% profit decrease compared to the same quarter in 2020. The stock gained about 1% in October despite missing Q3 revenue expectations and has lost about 10% of its value in the last three months, despite posting an all-time high just four weeks ago.

Buyers Having Second Thoughts

Buying interest in electric vehicle production has waned so far in 2022, triggering corrections all across the automotive and auto parts sector.  High costs, battery limitations, and the lack of a nationwide charging grid are forcing many consumers to put off purchases until later this decade, when the technology is expected to mature. Supply disruptions have raised sticker prices and emptied inventories at the same time, as evidenced by a 43% decline in GM’s Q4 sales.

Deutsche Bank is still pounding the table, viewing General Motors as better long-term bet than rival Ford Motor Co. (F). Even so, analyst Emmanuel Rosner expects both companies to post solid 2022 outlooks, “reflecting unusual concurrent positive industry conditions of volume recovery and robust pricing, offsetting cost inflation.” His price targets reflect this contrasting view, with GM’s $71 equating to 10 times projected 2022 EPS while F’s $24 yields just 9 times.

Wall Street and Technical Outlook

Wall Street consensus is glued to a ‘Buy’ rating, now based upon 19 ‘Buy’, 2 ‘Overweight’, 4 ‘Hold’, 0 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $53 to a Street-high $100 while the stock is set to open Tuesday’s session right on top of the low target. Taken together with January’s slide to a 4-month low, this humble placement suggests significant upside potential if the company posts a solid quarter.

General Motors broke out above multiyear resistance in the 40s at the start of 2021 and stalled in the mid-60s in March. Four breakout attempts have failed since that time, yielding a potential topping pattern with support in the upper 40s. Accumulation has now fallen to the lowest low since September 2020, indicating aggressive profit-taking that will take time to overcome. Even so, weekly relative strength readings are deeply oversold, raising odds for a healthy bounce.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Wall Street Week Ahead Earnings: Alphabet, PayPal, Exxon Mobil, Meta, Qualcomm and Amazon in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion will hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of January 31

Monday (January 31)

TICKER COMPANY EPS FORECAST
CBT Cabot $1.06
CRUS Cirrus Logic $1.91
FN Fabrinet $1.28
HLIT Harmonic $0.09
NXPI NXP Semiconductors $2.67
PCH PotlatchDeltic $0.48
RYAAY Ryanair Holdings $-0.15
SANM Sanmina $0.91
TT Trane Technologies $1.31
WWD Woodward $0.83

 

Tuesday (February 1)

IN THE SPOTLIGHT: ALPHABET (GOOGLE), PAYPAL, EXXON MOBIL

ALPHABET: The parent of Google and the world’s largest search engine that dominates internet search activity globally is expected to report its fourth-quarter earnings of $26.71 per share, which represents year-over-year growth of about 20% from $22.3 per share seen in the same period a year ago.

The Mountain View, California-based internet giant would post revenue growth of nearly 27% to $72.133 billion from $56.9 billion a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Key Alphabet (GOOG) ’22 Ad Buyer Survey conclusions: i) Google Search remains highest ROI platform; ii) YouTube expected to gain ad share ’21-’23; & iii) GOOG Search & YouTube are the top platforms for ad buyers reallocating budget due to iOS changes. We est. GOOG’s share of WW Digital adv. (x-China) goes from 41% to 37% ’22-’27. We extended model to ’27, PT to$3,500 vs. prior $3,360, reiterate Outperform,” noted John Blackledge, equity analyst at Cowen.

PAYPAL: The digital payments company is expected to report its fourth-quarter earnings of $0.86 per share, which represents year-over-year growth of about 15% from $0.75 per share seen in the same period a year ago. The San Jose, California-based company would post revenue growth of over 12% to around $6.9 billion.

EXXON MOBIL: The oil company will see its earnings rise multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago. On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

TICKER COMPANY EPS FORECAST
AMD Advanced Micro Devices $0.69
AMCR Amcor $0.18
ASH Ashland Global Holdings $0.93
CTLT Catalent $0.79
CB Chubb $3.34
EA Electronic Arts $2.81
XOM Exxon Mobil $1.73
GM General Motors $0.84
NMR Nomura Holdings $0.2
SBUX Starbucks $0.8
UBS UBS Group $0.24
UPS United Parcel Service $3.05

 

Wednesday (February 2)

IN THE SPOTLIGHT: META PLATFORMS (FACEBOOK), QUALCOMM

META PLATFORMS (FACEBOOK): The world’s largest online social network is expected to report its fourth-quarter earnings of $3.78 per share, which represents a year-over-year decline of over 2% from $3.88 per share seen in the same period a year ago.

The Menlo Park, California-based social media conglomerate would post revenue growth of over 30% to around $33.04 billion. The social media giant has consistently beaten consensus earnings estimates in most of the quarters in the last two years, at least.

QUALCOMM: The world’s biggest mobile phone chipmaker is expected to report its fiscal first-quarter earnings of $2.77 per share, which represents a year-over-year decline of over 40% from $1.97 per share seen in the same period a year ago.

The chip manufacturer would post revenue growth of nearly 27% to $10.45 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

Qualcomm forecasts GAAP revenue in the first quarter of fiscal 2022 to be between $10 billion and $10.8 billion. On a non-GAAP basis, earnings will likely range from $2.90 to $3.10 per share, while GAAP earnings will likely range from $2.53 to $2.73 per share, according to ZACKS Research.

“After underperforming the SOXX for most of 2021 until a sharp rally late in the year, we see a strong setup for a now Apple-overhang-free Qualcomm in 2022 as investors begin to appreciate the diverse revenue drivers beyond Wireless. Expect solid print and guide, with focus on execution and growth in the connected intelligent edge and update our estimates accordingly,” noted Matthew Ramsay, equity analyst at Cowen.

“We reiterate our price target of $210 based on 17.5x our F2023 EPS estimate of $12.0 and our Outperform rating.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

TICKER COMPANY EPS FORECAST
EAT Brinker International $0.5
CHRW C.H. Robinson Worldwide $1.85
CPRI Capri Holdings $1.67
CTSH Cognizant Technology Solutions $1.03
RACE Ferrari $1.08
FB Meta Platforms $3.78
MET MetLife $1.63
TMUS T-Mobile $0.2

 

Thursday (February 3)

IN THE SPOTLIGHT: AMAZON

The e-commerce leader for physical and digital merchandise, Amazon, is expected to report its fourth-quarter earnings of $3.9 per share, which represents a year-over-year decline of over 70% from $14.09 per share seen in the same period a year ago.

However, the Seattle, Washington-based multinational technology giant would post revenue growth of about 10% to around $138 billion. The company has beaten earnings per share (EPS) estimates most of the time in the two years.

“We are reiterating our BUY rating and our price target to $3,900. Our price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast of 22.0% versus 13.7% in 2020,” noted Tom Forte, MD, Senior Research Analyst at D.A. DAVIDSON.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

TICKER COMPANY EPS FORECAST
ABB ABB $0.38
ALL Allstate $2.72
COP ConocoPhillips $2.23
LLY Eli Lilly $2.37
HON Honeywell International $2.09
PRU Prudential Financial $2.44
SU Suncor Energy $0.95
SYNA Synaptics $2.63

 

Friday (February 4)

TICKER COMPANY EPS FORECAST
APD Air Products & Chemicals $2.51
AON Aon $3.33
BMY Bristol Myers Squibb $1.85
CBOE Cboe Global Markets $1.41
ETN Eaton $1.73

 

Ford Motor Tops SP-500 Performance List

Ford Motor Co. (F) has surged to a 20-year high in the first week of 2022, joining rivals Tesla Inc. (TSLA) and General Motors Co. (GM) in the momentum wave generated by the electric vehicle revolution. It now stands atop the SP-500 performance list for the first time this century, marking the next step in restoring its diminished reputation. However, the rally seems premature, with December U.S. sales dropping 17.1% year-over-year from 2020’s depressed levels.

Industry-Leading Fourth Quarter

Admittedly, Ford was also America’s best-selling automaker in the fourth quarter, with 508,451 vehicles marking a 16.8% increase over the third quarter. Overall industry sales fell about 3% in the quarter, yielding a strongly bullish divergence that highlights growing interest in the company’s new product line. EV sales contributed to this sales burst, growing 36% faster than the broad segment in 2021 while hitting December and full-year sales records, with 121% annual growth.

The all-electric F-150 pickup is capturing consumer and Wall Street attention, with Ford announcing this week it will double production due to strong demand. The company had shut down reservations for the truck to deal with an “overwhelming response” and has now started to accept purchase orders once again. In addition, customers who already placed reservations will receive invitations to convert those requests into actual orders.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated in the last 12 months, now standing at a ‘Moderate Buy’ rating based upon 11 ‘Buy’, 2 ‘Overweight’, 6 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $12 to a Street-high $26 while the stock is set to open Thursday’s session less than $3 below the high target. This lofty placement suggests recent gains are unsustainable, which makes sense with industry sales still below pre-pandemic levels.

Ford topped out in the mid-teens in 2013 and entered a steep downtrend that hit an 11-year low in March 2020. The subsequent uptick reached 20-year horizontal resistance in the upper teens in November 2021 and broke out, stretching in a straight line into the mid-20s. This price level marks strong resistance at the .618 Fibonacci retracement level of the 1999 into 2008 downtrend, raising odds for a long overdue reversal and pullback that tests new support.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

General Motors Invests in Electric Boating Start-Up Pure Watercraft

An increasing number of companies are entering the electric transportation sector as world leaders intensify their efforts towards climate change.

GM Buys 25% Stake in Pure Watercraft

General Motors, one of the leading automobile manufacturers in the United States, announced that it had acquired a 25% stake in Pure Watercraft, a Seattle start-up that manufactures electric outboard motors for boats.

Pure Watercraft CEO Andy Rebele told CNBC earlier today that “The boating market is growing like it hasn’t since post-World War II. During the pandemic, people wanted to do things with their families, with their pods. Going out on the water is one of the ideal things to do.”

The company utilizes lithium-ion batteries, replacing about 40- to 50-horsepower outboard motors that burn gas or diesel. Pure Watercraft’s systems are much quieter and cleaner compared to the traditional boats that contribute to environmental problems, including noise pollution, smog, and water pollution.

Rebele said the electric board industry is set to grow even bigger over the coming years as more people adopt greener means of transportation.

GM to Expand its Presence in the Electric Transport Sector

General Motors is one of the companies that has made a commitment to become all-electric. The company announced its plans to go all-electric earlier this year, and investments such as Pure Watercraft would increase the company’s presence in the emerging sector.

GM stock chart. Source: FXEMPIRE

GM CEO Mary Barra pointed out last month that the company is interested in marine electric transportation.  GM is set to become a supplier of components to Pure Watercraft and will help with the engineering, design and manufacturing of the boats.

GM’s stock is up by more than 4% since the company announced this latest development. At press time, GM is trading at $64.06 per share and could rally higher over the coming weeks. Since the start of the year, GM has added more than 53% to its value, making it one of the best performers in the automobile sector.

Why Rivian Automotive Stock Is Set To Rally Today

Rivian Automotive Prices IPO Above Expected Range

Rivian Automotive priced its IPO at $78/share, so the company enters the marketplace with a valuation of $66.5 billion. In comparison, Ford is valued at $81 billion while General Motors has an $85 billion market cap. Previously, Rivian was expected to price its IPO at $72 – $74. It should be noted that premarket indications show that Rivian stock could open above the $120 level.

The company will raise $11.9 billion from the IPO, and it will have a lot of money to invest in its business. Traders and investors look ready to pay a major premium for the shares of the electric vehicle startup as they do not want to miss a high-growth story in a market that is trading near all-time high levels.

It should be noted that Rivian is supported by Amazon, which owns a roughly 20% stake in the company. Clearly, Amazon’s involvement serves as a material upside catalyst for Rivian shares as Amazon has the ambition to compete with Tesla in the EV market.

What’s Next For Rivian Stock?

The expected price range for Rivian’s IPO has been raised several times which highlights the strength of demand for the company’s stock.

There’s a lot of buzz around Rivian, and the stock has a decent opportunity to gain upside momentum in the upcoming trading sessions as many retail traders will likely rush to get a piece of another hot electric vehicle stock.

At this point, it’s too early to talk whether the valuation at IPO is justified, and the near-term direction of Rivian stock will depend solely on market sentiment.

The recent rally in Tesla shares showed that traders and investors are ready to pay a huge premium over stocks of traditional automakers, and Rivian stock will have an opportunity to ride the wave of investor enthusiasm. Traders should be prepared for fast moves as the stock will certainly experience elevated volatility in the next few weeks.

For a look at all of today’s economic events, check out our economic calendar.

Tesla Price Prediction: A Blow-off Top Followed by Epic Collapse

  • Hertz Announced an initial order of 100,000 Tesla’s to be filled by year-end 2022.
  • Tesla skyrocketed from a $913-billion market cap (October 22, 2021) to $1.21 trillion.
  • The bullish response added $300 billion, implying a $3-million price tag per vehicle ordered (not sold).

Tesla Daily Chart

Tesla shares skyrocketed above $1000 on the Hertz announcement. Tesla is now worth more than all the auto manufacturers combined. More on that later.

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Tesla Market Cap

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https://ycharts.com/companies/TSLA/market_cap

Gross Profit

Let’s say Tesla makes a generous $20,000 profit per vehicle ($20,000 X 100,000). That indicates a gross profit of $2 billion, far shy of the $300-billion increase. What is going on here?

Ford Motor Company

By comparison, Ford Motor Company currently sports a $72-billion market cap, so Tesla adding $300 billion in market cap is like adding four (4) Ford Motor Companies.

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https://ycharts.com/companies/F/market_cap

Major Auto Companies by Market Cap

Below is a quick rundown of all major auto manufacturers by current market cap. Tesla is worth more than all and sells less than 1% of the vehicles.

With a market cap of $1.21 trillion, TSLA is trading at a 25% premium above all auto manufacturers on the planet!

Tesla looks, acts, and smells like a bubble. The question is…when will it pop?

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here, or follow AG on Twitter at https://twitter.com/ag_thorson

General Motors Battered and Bruised After Earnings

General Motors Co. (GM) is trading lower by more than 2% in the first hour of Tuesday’s session after beating Q3 2021 earnings-per-share (EPS) estimates by a wide margin while coming up short on revenue. The automaker posted a profit of $1.52 per-share during the quarter, much higher than $0.98 expectations, while revenue fell 24.5% year-over-year to $26.78 billion, missing consensus by more than $1 billion. Fiscal year 2021 guidance at the high end of prior metrics failed to sway exiting shareholders.

Playing a Numbers Game

Earnings before interest and taxes (EBITDA) hit $2.9 billion and a 10.9% profit margin while well-documented supply chain disruptions undermined income. A one-time settlement in the GM Financial division also boosted the number, making the result less palatable. Fiscal year 2021 EPS guidance between $5.70 and $6.70  feels like a wide range numbers game, with the company expressing more uncertainty than upbeat comments in CEO Mary Barra’s morning interview.

Barra noted on CNBC that trucks and full-sized SUVs are attracting the most buying interest while the company is selling every vehicle they can make, which isn’t surprising given chronic shortages. She also insisted that semiconductor supply will improve in Q1 2021, even though many companies have warned that disruptions could easily last into the second half.  This comment warrants skepticism, given false confidence offered by governments and businesses throughout this crisis,

Wall Street and Technical Outlook

Wall Street consensus has grown overly bullish in recent quarters, yielding a ‘Buy’ rating based upon 21 ‘Buy’, 1 ‘Overweight’, and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $53 to a street-high $95 while the stock opened Tuesday’s session just $2 above the low target. This dismal placement highlights the failure of analysts to accurately measure the impact of supply disruptions on U.S. corporations.

General Motors failed breakouts above the 2011 high at 38.95 in 2014 and 2017, leaving behind a shallow rising highs trendline. The stock slumped to an all-time low during the pandemic decline and shot higher, returning to trendline resistance at 50 in January 2021. An immediate breakout stalled below 64, giving way to an August support test that attracted willing buyers. It closed two-thirds of the distance to the prior high into this week’s report and has sold off, adding to rangebound action that could last well into the first quarter of 2022.

For a look at today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

How Supply Issues could Influence SP500?

At the same time, many businesses continue to announce plans for further price increases, with most facing higher cost pressures. It will be interesting to see how or when the U.S. consumer starts to pull back.

Upcoming price increases

UPS yesterday was the latest to announce upcoming price increases, joining companies like Kimberley-Clark, Procter & Gamble, Nestlé, and Chipotle, to name just a few that are attempting to offset higher input costs. These moves reinforce the bears argument that inflation will prove to be longer-lasting than the Federal Reserve’s stance that the wave of higher prices is only “transitory.”

Judging from regional Federal Reserve Manufacturing Surveys that have been updated so far, challenges related to supply chain dislocations and labor shortages continue to contribute to the inflationary environment. Meaning manufactures are still struggling to expand output amid raw material shortages, higher input costs, transportation bottlenecks, and a lack of qualified workers. There have been minor improvements with the pace of cost increases easing a bit and respondent outlooks turning more positive.

It will take more than one month of slightly better data for investors to believe the worst of the supply chain mess is behind us, though.

Data to watch today

Economic data today includes advanced reads on Retail and Wholesale Inventories for October. Bulls are hoping inventories have managed to climb from depressed levels brought on by supply chain challenges, especially as we head into the holiday shopping season. Remember, if companies don’t have the products to sell it will be tough to meet earnings and growth forecasts.

Durable Goods Orders for September is also due today. Oil traders today are anxious to see the Energy Information Administration’s weekly oil inventory report after both Brent and WTI oil futures yesterday closed at their highest levels since 2014 when oil was trading close to $100 a barrel.

Investors this morning will also be digesting the Bank of Canada’s latest policy decision. Insiders are expecting the central bank to raise its inflation forecast and further cut its bond purchases. Another reduction will mark the fourth time in the past year that the Bank of Canada has “tapered” its asset purchases, something most other central banks have not yet begun. The Bank of Canada could also announce when it intends to begin interest rate hikes, with some analysts anticipating liftoff as soon as March due to rising inflation.

Such a move could increase fears that other global central banks, including the U.S. Fed, will feel pressured to act more aggressively to combat inflation. Meaning analysts could begin moving up timelines for when the Fed might end asset purchases and begin rate hikes, something that could weigh on bullish outlooks.

Earnings

It’s another busy day for earnings with highlights including BASF, Boeing, Bristol Myers Squibb, CME Group, Coca Cola, eBay, General Motors, Hilton Worldwide, Kraft Heinz, McDonald’s, Norfolk Southern, O’Reilly Automotive, Thermo Fisher, and Twilio. Alphabet (Google) and Microsoft announced after the market close yesterday with both blowing expectations out of the water.

Notably, Google’s advertising revenue, which rose +43%, didn’t appear to take any hits from changes made to Apple’s privacy policies, something cited by both Facebook and Snap. Both Google and Microsoft also saw continued robust growth in their cloud divisions with revenue climbing +45% and +31% respectively. Apple and Amazon will wrap up the the last of the so-called FAAMG stock earnings when they report tomorrow. Stay tuned…

Big Tech Pushing S&P 500… But How Does it End? Amazon, Apple, Facebook, Google, Microsoft and Tesla now make up 24% of the S&P 500. It seems like how they go so goes the overall stock market. Keep in mind, “Big Tech” now makes up about 40% of the entire S&P 500. If the trade finds Big Tech to be overvalued or in some type of bubble the market could take a sizable hit as it deflates.

Best Stocks, Crypto, and ETFs to Watch This Week

Facebook Inc. (FB) has sliced and diced shareholders since September, dropping more than 15% from an all-time high before bouncing strongly at a 19-month trendline on Oct. 12. It jumped more than 20 points off the low into Wednesday of last week and then plummeted after Snap Inc. (SNAP) warned about the revenue impact of new iPhone ad tracking blockers. The stock is back to trendline support, just in time for Monday’s post-market earnings report.

General Motors Corp. (GM) profits have been hurt by persistent supply disruptions so far in 2021, with the automaker forced to idle factories despite the enthusiastic reception of new models and a major commitment to electric vehicles. The stock bounced at an 8-month low in August and closed half the distance back to June’s all-time high in the 60s, before the rally stalled about two-weeks ago. All eyes are now focused squarely on Wednesday’s post-market report and further comments about supply issues.

Dow component Chevron Corp. (CVX) was left for dead in 2020, with the election of an environmentally friendly president heralding in an era of alternative energy. The crude oil futures market promptly took off for the heavens, reacting to political pressure on drilling and production that could trigger worldwide shortages until clean energy can replace fossil fuels, which might take a decade or more. Integrated oil and gas companies reacted slowly to the rally but are now getting bought aggressively and could hit new highs in 2022.

Bitcoin bottomed out at 40,000 in September after dropping nearly 25% and turned sharply higher, heading in a straight line into the April high near 65,000. The digital giant broke out for a single session last week before turning tail in a decline that’s typical when financial instruments test prior highs. The reversal left behind a weekly shooting star candlestick that predicts at least several weeks of relative weakness before the cryptocurrency can successfully break out to new highs.

The Russell-2000 ETF (IWM) more than doubled in price into March 2021 before topping out above 233. Price action since that time has carved a narrow symmetrical triangle that, when taken together with the vertical uptick, has completed a bullish ‘flag at the top of a flagpole’ that predicts a measured move equal to the prior rally. Small caps have just entered their most seasonally favorable time of year, raising odds for a breakout that could last through the first quarter of 2022.

For a look at this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

General Motors Targets Tesla With Ambitious EV Plans

General Motors outlined an aggressive growth plan at its investor day on Wednesday. The automaker is targeting a doubling of its revenue to $280 billion by 2030 while bolstering margins at the same time. GM’s five-year sales average has been $140 billion.

GM CFO Paul Jacobson explained to CNBC that the opportunity for the company involves connected vehicles. This is where the automaker can look to software to diversify its revenue stream in addition to selling vehicles. Jacobson described a $20 billion-25 billion market opportunity in software alone, coupled with its autonomous or driver assistance system and electric vehicles (EVs).

GM is targeting margins in the 12-14% range in the same period driven by the scaling of EVs coupled with falling battery prices. The automaker is also looking to its software business for higher margins in addition to expanding into new segments.

EVs are a major part of GM’s growth plan. The company expects revenue from this division to increase from $10 billion in 2023 to $90 billion each year by the end of the decade. GM says it has “several compelling EVs in high volume segments” in the works. In fact, the traditional automaker says that it will be transitioning to a portfolio mix that is dominated by EV products.

Investors Skeptical

GM’s stock did not rally on the company’s ambitious outlook, and it could be because investors are not convinced that GM can pull it off. The forecast is dependent on markets such as autonomous driving continuing to gain traction so that GM can reach its revenue goals by the end of the decade.

Jacobson maintained that GM is going forward with a “startup mentality” and is confident that customers will dole out $135 per month on software subscriptions. GM is also betting that autonomous driving will catch on sooner than later.

General Motors suspended its dividend during the coronavirus year. Now GM is prioritizing directing its capital expenditures toward its growth initiatives.

Targeting Tesla

With its EV push, GM will be going toe-to-toe with industry leader Tesla. GM will have its work cut out for it, as Tesla has a grip on this industry, with 63% market share in the U.S. EV market.

Tesla holds its shareholder meeting later this week.

Tesla’s Q3 EV Deliveries Soar Even as ARK Unloads Shares

Tesla is in the spotlight as the final quarter of the year gets underway. The period is key for the electric vehicle maker to meet its delivery estimates for 2021. Elon Musk’s company is off to a good start based on third-quarter results.

Tesla announced on Oct. 2 that it delivered 241,300 vehicles in Q3, representing a 73% increase year-over-year and exceeding expectations. Wall Street analysts were looking for 220,900 deliveries. Tesla sales were also up 20% vs. Q2 results.

The results are especially noteworthy considering that most sectors of the economy are experiencing a supply shortage for products such as the chips that are needed to make the vehicles. Tesla manufactured 237,823 vehicles in Q3.

ARK Invest Offloads Tesla Shares

Cathie Wood, who is at the helm of disruptive investment firm ARK Invest, is known for her bullish forecast on the Tesla stock price of $3,000. Nonetheless, she aggressively sold shares last month.

In her most recent selling spree, she offloaded 381,000 shares of the EV maker, bringing the firm’s combined divestment in the stock to more than $600 million in recent days. Wood sold the stock in favor of shares of trading platforms Coinbase and Robinhood, both of which she bought up.

ARK Invest still owns more than $2 billion of Tesla shares.

Auto Industry Dynamics

It is unclear why ARK sold a percentage of its Tesla holdings. Wood in a Twitter thread touted Tesla’s recent deliveries in the face of a supply shortage.

She noted how traditional automaker General Motors recently suffered a roughly 33% decline in US sales, which it attributed to chip shortages. Meanwhile, Wood pointed out, EVs command between three and five times more chips, and yet Tesla experienced no such setback.

The ARK Invest chief believes it is entirely possible that “chip supplies loosen up considerably,” reversing the issue from a shortage to a glut amid weakening demand for traditional vehicles. She said there are signs that “chip supply constraints are easing,” pointing to comments from industry leaders including Elon Musk.

Source: Twitter

Wood also predicts that EV prices are poised to move below those of traditional autos in comparable categories. She says this will pressure the gas-powered automakers to move more toward an EV model.

General Motor’s Third Quarter Sales Dip Due to Massive Chip Shortage

General Motors has experienced a decline in its sales for the third quarter as the automobile industry continues to experience a shortage of chips.

General Motors Experiences A Dip In Sales

General Motors, one of the leading automobile manufacturers in the world, has revealed that its sales in the third quarter of the year have reduced. The automobile manufacturer said its sales dropped due to the continued chip shortage.

The Detroit automaker said earlier today that it sold roughly 447,000 vehicles from July through September. This represents a 32.8% decline from the same quarter a year ago when the sales dropped due to the Coronavirus pandemic. General Motor’s decline in sales was even higher than the industry analysts’ expectations of 28.9%.

General Motors has been forced to shutter plants for the past few months due to the chip shortage. Like many other automobile manufacturers globally, the company has also been forced to focus on manufacturing vehicles that are in high demand. General Motors has been focusing on its full-size pickup trucks, which have been in high demand in recent months.

GM’s Shares Up By Less Than 1%

This latest development didn’t surprise the market as the company warned its investors last month to expect a decline of roughly 200,000 units in terms of sales volume for the second half of the year.

Despite the decline in sales, General Motors continues to maintain its financial guidance for 2021. General Motors expects its adjusted earnings for the year to be between $11.5 billion and $13.5 billion, or $5.40 to $6.40 a share.

The numbers aren’t looking good for General Motors at the moment. Every General Motors’ brand took a hit in the third quarter in terms of sales, with Chevrolet recording the biggest loss (36.1%)

GM stock chart. Source: FXEMPIRE

Despite that, the shares of General Motors are up by less than 1% today. GM is trading at $52.95 per share, up by 0.5% since the US market opened. GM is also up by 30% since the start of the year despite the continued chip shortage.

The shares of General Motors were trading at $40 each at the start of the year, but they are now trading around $53.

General Motors Bounce Unlikely to Persist

General Motors Co. (GM) hopes to lift weakened investor sentiment on October 6 when the automaker presents its annual two-day Investor’s Day event. The stock has struggled since posting an all-time high at 63.88 in June, giving up more than 25% of its value before bouncing in the upper 40s in late August. Accumulation readings have taken a steep slide during this period, dumping to the lowest lows since October 2020 when GM was trading in the mid-30s.

Supply Shortages Weigh on Profits

Automotive chip shortages are well documented but lasting far longer than overly-optimistic forecasts published in the first quarter of 2021. Many experts now believe that supply shortages and disruptions will persist until at least the second quarter of 2022, forcing GM to idle factories and fail to meet high demand. In fact, just 10 days ago, the company added to scheduled downtime at seven plants in the US, Canada, and Mexico, highlighting this chronic headwind.

Citigroup analyst Itay Michaeli outlined his bullish view ahead of Investor’s Day on Friday, noting, “We continue to regard the upcoming Investor Day as a potential significant positive catalyst for the stock, as we see a number of paths for GM to address key debates and unlock trapped value. We’re also updating our model to reflect GM’s recent reiteration of its 2021 EBIT-adj. guidance range, but with additional headwinds from the recall and semi-shortage, which moves our estimates to the lower-end of GM’s 2021 range”.

Wall Street and Technical Outlook

Ecstatic Wall Street coverage has failed to weigh the long-term impact of shortages, with a consensus ‘Buy’ rating based upon 21 ‘Buy’, 2 ‘Overweight’, and 2 ‘Hold’ recommendations. Price targets currently range from a low of $53 to a Street-high $90 while the stock closed Friday’s session just below the low target. GM has now traded under the low target for six straight weeks, with sidelined investors keeping their powder dry until supplies improve.

General Motors sold off to an all-time low in the mid-teens in March 2020 and turned sharply higher, returning to the 2017 high at 46.78 in January 2021. An immediate breakout added points into June’s all-time high, ahead of a decline that bounced at the prior peak in August. However, the downturn also broke a long-term trendline, establishing a strong barrier in the lower 50s, reinforced by 50-and 200-day moving average resistance. These obstacles will be tough to mount, at least in the short-term, given weak accumulation readings.

For a look at all of this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Microchip Shortage Is Hitting General Motors Hard As Company Extends Downtime At Several Assemblies

The global shortage of microchips is affecting the operations of numerous vehicle manufacturers, forcing them to make drastic changes to their manufacturing schedules.

General Motors Extends Downtime At Crossover Assemblies

Detroit-based General Motors has announced that it has extended the downtime at several crossover assemblies across the United States. The global shortage of microchips is the major reason why the automobile manufacturer is taking such drastic action.

In a statement yesterday, the automaker said, “These most recent scheduling adjustments are being driven by the continued parts shortages caused by semiconductor supply constraints from international markets experiencing COVID-related restrictions.”

General Motors added that while the situation remains complex and fluid at the moment, it is prioritizing full-size truck production due to their high demand. The automaker said seven of its plants in North America would be fully operational next week. They are; the full-size SUV plant in Arlington, Texas; the GMC Acadia, Cadillac XT5 and XT6 plant in Spring Hill, Tenn; the full-size pickup plants in Flint, Mich., Fort Wayne, Ind., and Silao, Mexico; the Chevrolet Corvette plant in Bowling Green, Ky.; and Fairfax Assembly in Kansas.

Automobile manufacturers would fall short of 9.4 million vehicles this year in terms of production due to the worldwide shortage of microchips. At the moment, they are down by 8.2 million, with North America accounting for 2.6 million so far.

General Motors Is Having Troubles With Its Electric Cars

General Motors has been experiencing certain troubles with its electric vehicle, the Chevrolet Bolt. The company extended the shutdown of its assembly plant that manufactures the Bolt until mid-October due to another safety notice related to the car.

Earlier this week, General Motors had asked Bolt owners to park at least 50 feet from other vehicles inside parking garages because the electric cars could catch fire. The company also said users should not leave their vehicle charging unattended, even if they are using a vehicle charging station in a parking deck.

GM stock chart. Source: FXEMPIRE

The shares of General Motors are up by 0.60% at Friday’s pre-trading session despite the negative news from the company over the past 48 hours. GM is trading at $51.80 per coin and has delivered excellently this year.

GM’s stock price is up by more than 20% year-to-date. It started trading at $41 per share at the beginning of the year, and it is now trading above $51 per share.

GM to Cut North American Production, Citing Chip Shortage

The largest U.S. automaker will halt production next week at its Fort Wayne plant in Indiana and its Silao plant in Mexico, both of which build pickup trucks. In total, GM is cutting production at eight North American assembly plants in September.

The industry-wide chip shortage is causing massive auto production cuts around the globe and auto industry officials say the problem is getting worse.

GM shares were largely unchanged in late trading Thursday.

Earlier this week, Ford Motor Co said it will also cut truck production next week because of the chips shortage and said its August U.S. sales were down 33% on the chip shortage. Toyota Motor Corp said last month it will slash global production for September by 40% from its previous plan.

GM will halt production at its Wentzville, Missouri plant for two weeks starting Sept. 6 that builds midsize trucks and full-size vans. GM will also halt production at the CAMI Assembly in Canada and San Luis Potosi Assembly in Mexico for two additional weeks. The company builds its Equinox SUV at both plants.

The automaker is also idling production for two additional weeks at its Lansing Delta Township plant that builds the Chevrolet Traverse and the Buick Enclave.

GM will cut two weeks of production in September at the Spring Hill Tennessee plant that builds the GMC Acadia, Cadillac XT5 and Cadillac XT6. Its Ramos, Mexico plant will take two additional weeks of downtime for Blazer production, while Equinox production will be down through the week of Sept. 27.

Production of the Equinox has been down since Aug. 16.

Democratic Senator Mark Warner said the “continuing impact of the chip shortage – epitomized most recently in the news that GM will be forced to idle plants across North America – speaks to the urgency of passing bipartisan legislation to fund new semiconductor production in the United States.”

GM said during production downtime it will repair and ship unfinished vehicles from many impacted plants, including Fort Wayne and Silao.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by David ShepardsonEditing by David Evans and Chizu Nomiyama)