Pressure mounts on Tesla as bond yields rise
Tesla (TSLA) stock has been under pressure, along with the broader equity market, since the Fed’s last monetary policy meeting. The Fed downgraded its economic outlook and raised its rate hike forecast for next year. The Federal Reserve now plans to keep its key rates between 4.50% and 4.75% throughout next year, while operators anticipated the first rate cuts in the second half of 2023.
For the first time, the Fed is “in front of the curve” after having maintained a monetary policy and expectations of rate hikes lower than those of the operators. The message from the Fed is unequivocal: monetary policy will be restrictive for longer than expected by market operators.
As a result, US bond yields naturally jumped, putting pressure on equity markets, especially the more expensive stocks. Tesla therefore underperformed last week, falling almost 10%, compared to less than 5% for the S&P 500 and the Nasdaq 100.
US bond yields are also supported by growing central bank intervention to slow the depreciation of their currencies. Indeed, all major and emerging currencies are increasingly under pressure against the dollar.
Many emerging market currencies are falling to new all-time lows against the dollar and the euro, pound and yen are falling to historic lows. The Japanese authorities have started to intervene in the foreign exchange market by selling Treasury bonds to buy yen, thus accentuating the rise in bond rates.
However, the next big move lower in the stock markets should come from the downward revision of earnings forecasts. As the macroeconomic situation deteriorates, analysts are revising their forecasts downward, putting pressure on the equity market. As for the revisions, the worst is probably yet to come as analysts still have optimistic micro and macro expectations.