Tesla shares rose on Thursday, partly due to the Federal Reserve's interest rate decision.
Tesla's (TSLA.O) shares closed up 7.4% at $243.92, while the S&P 500 and Dow Jones Industrial Average rose 1.7% and 1.3%, respectively.
Those gains were driven in part by the Federal Reserve's decision to cut interest rates by 50 basis points, a move that was within market expectations but more aggressive than a 25 basis point cut.
“Rate cuts will have the biggest boost to long-cycle — high P/E — growth stocks,” said Gary Black, co-founder of Future Fund active ETFs and a Tesla shareholder.
"Long term" refers to the time it takes for investors to recoup their initial bond investment. Higher-yield bonds have shorter maturities, meaning more money is recouped more quickly in interest payments. Longer-maturity bonds are more sensitive to changes in interest rates. Black is essentially explaining why Tesla gets a bigger boost when interest rates cut.
Still, the expected cap rate cut should be a boon for auto stocks. Lower rates make financing a car more affordable, reducing pressure to cut prices and boosting demand.
Shares of General Motors (GM.N) and Ford Motor (F.N) rose for much of the session but ended down 0.1% and 0.6%, respectively. Stellantis (STLA.N) rose 1.4%.
Shares of Toyota Motor (TM.N) and Honda Motor (HMC.N) rose 5.1% and 3.4%, respectively, in overseas trading. They also benefit from low interest rates. A stronger dollar against the yen also benefits the profits of companies that export goods to the United States, such as the two automakers. The recent strength of the yen has been troubling for Japanese automakers. In Thursday's trading, Toyota's shares have fallen about 15% over the past three months, while Honda's shares have fallen nearly 7%.
“With more available supply and the Federal Reserve’s recent rate cuts, the auto market is moving toward more predictability, giving more consumers reasons to come out of the sidelines and make a purchase,” Rebecca Lindland, senior director of data and insights at Cars Commerce, said in a press release Thursday.
Tesla's stock price fell 0.3% on Wednesday, similar to the change in the S&P 500. Investors seemed to be more optimistic about the Federal Reserve's decision on Thursday. Before the start of trading on Thursday, Tesla's stock price had fallen about 9% so far this year. The decline in electric vehicle sales has had a negative impact on investor sentiment. Tesla sold about 831,000 vehicles in the first half of 2024, down about 7% year-on-year.
Tesla's stock price is typically more volatile the day after a Fed decision than the day of the decision. Since 2019, Tesla's stock price has moved an average of about 2.5% (up or down) on decision days, while the average move after the decision is 3.2%, according to Dow Jones Market Data.
The S&P 500 typically moves about 1.1% (up or down) on Fed decision days, and the same is true the day after the decision.
Tesla's stock price moves in the same direction as the market about 75% of the time on the Fed's decision day and the day after the decision.
Interest rates will dominate Thursday's trading. In addition to the Fed, investors also received some worrying news from Europe. According to industry data provider ACEA, new car sales in August fell about 17% year-on-year. Battery electric vehicle sales fell 36%, while plug-in hybrid vehicle sales fell 22%.
Year-to-date, car sales in Europe are up about 2% year-on-year. Battery electric vehicle sales are down about 6%, while plug-in hybrid sales are down 2%. Battery electric vehicles account for about 14% of new car sales in Europe so far, down about one percentage point year-on-year.
In contrast to European sales are Chinese sales figures, where Tesla sold more than 15,000 vehicles in the past week, according to data tracked by Citi analyst Jeff Chung, who expects the company to have its strongest quarter ever in China.
Article forwarded from: Jinshi Data
