Between the busiest earnings week this quarter, cage fights, and Big Tech’s antitrust hearings, are storm clouds gathering over Wall Street?
To say that the market has been on a rollercoaster ride in 2020 would be the understatement of this already existentially-challenging year. However, you’ve heard all of these analogies before, so let’s get down to the real reason we’re here:
Elon Musk has challenged ‘Pirates of the Caribbean’ actor Johnny Depp to a cage fight, sending Tesla (NASDAQ: TSLA) shares soaring almost 9%.
Ok, that’s not strictly true, but Musk did solicit the challenge on the same day where he also accused Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett of not being the “kindly grandfather” he’s cracked up to be! *gasp*. Berkshire shares fell 1.2% on the news — ok, probably not because of that…
However, that is the sort of trivial, ‘he said — she said’ news that is filling the likes of CNBC and Market Watch this week, in what could be a defining moment for the stock market in 2020. Should this week turn sour, we could be in for a bumpy ride.
The Tesla ‘bubble’
Before we look at the most important events this week, we need to talk about something. Tesla stock is overvalued, no doubt, and its success has even (undeservingly?) propped up rivals such as NIO (NYSE: NIO) and Nikola (NASDAQ: NKLA). Bearish analysts have screamed accusations of ‘bubble’ and ‘overpriced’ for months now, while short-sellers have lost billions thanks to the electric vehicle maker’s refusal to slow down.
With its stock up around 250% YTD, it is now the most valuable automaker on the planet and is on the verge of S&P 500 (NYSEARCA: VOO) inclusion. It has been an important catalyst in the overall market rally since March lows and has certainly played its part in the tech-heavy Nasdaq (NASDAQ: NDAQ) outperforming the other major indexes and rising 20% year-to-date. But many analysts still maintain that it has ballooned to levels unjustified by its fundamentals, fueled by risk-taking and short covering. This argument gains some credence from the fact that Tesla has boosted its own revenue simply by selling carbon-emissions credits to rivals like General Motors (NYSE: GM) rather than via its own fundamentals.
In my opinion, too much weight has been given to Tesla’s importance in this market, which could lead to a heavy drop should its stock eventually pull back. And while I hope to see it continue to rise, I do believe that Tesla is overpriced right now, and that there are more important factors in play.
Big Tech’s big showdown
In recent months we have seen just how influential large tech stocks’ movements can be on the overall market with the real game-changers on Wall Street being the likes of Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG), and Facebook (NASDAQ: FB).
The market rallied on Monday, led largely by Big Tech’s upward trajectory as bullish sentiment breeds in the anticipation of Q2 earnings this Thursday, despite Microsoft’s (NASDAQ: MSFT) disappointing showing last week. However, Microsoft’s dip should serve as a warning to investors about what to expect on Thursday.
With four of the FAAMG family showing us the books on Thursday, what will happen if a couple, or all, serve up less-than-satisfactory results? With more than $5 trillion in total valuation all reporting at once, the trade levels anticipated are enough to set off the imaginary circuit breaker in my head. Thankfully they’ll all be reporting after-hours.
And that’s not all, as the CEOs of Apple, Facebook, Google, and Amazon will also be on Capitol Hill testifying in front of the U.S. House Judiciary Antitrust Subcommittee regarding antitrust practices. For a full preview of this, you should read my colleague Mike’s very insightful piece below:
Meanwhile, Microsoft has also been dragged into a potential antitrust lawsuit after Slack (NYSE: WORK) accused it of anticompetitive practices. With Big Tech making up almost 20% of the S&P 500’s total value, and 180 other members reporting this week too, I fully expect there to be some volatility this week. As the coronavirus situation continues to deteriorate, and should things go wrong for Big Tech this week, it could be the trigger that sets off yet another downturn.
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