April 29-May 3, 2024

Tactical Signal 9

Following a week of solid gains, our technical moving averages have improved and remain above the support level to maintain a fully invested position (100%).

Last week's market turbulence did not disappoint, with Tesla, Meta, and Alphabet announcing earnings. Still, by the end of the week, the S&P 500 and Nasdaq staged a remarkable comeback, surging by +2.68% and +4.23%, respectively, eclipsing the negative momentum. The market rebound was kickstarted on Tuesday by Tesla's (+14.44%) earnings guidance with the announcement of affordable new models coming in 2025, even though it missed on earnings and revenues.  On the other hand, even though Meta's (-7.85%) posted strong earnings, its modest earnings guidance and raised expense guidance sent the market down Thursday. Finally, it was thanks to Google's (+11.59%) robust earnings beat followed by a maiden quarterly dividend, share buyback program, and investment in AI that sparked another AI rally with NVIDIA (+15.14%) leading the charge. Tesla, Alphabet, and NVIDIA led a symphony of gains, propelling the Consumer and Technology sectors to soar +3.49% and 5.01%, respectively, leaving equities buzzing with excitement.

 On the economic side, inflation remained elevated, with Core PCE gaining 2.8% yoy above consensus and wholesale inventories declining by -0.4%.  The economy has slowed, with a first-quarter GDP of 1.6%, lower than forecast. Long-term bond yields continued to rise, albeit modestly by +5 bps, resulting in the return of the Bloomberg US Aggregate to 0.08%. YTD, bonds overall have returned -3.19%, while long-term Treasuries have already lost a whopping 9.19% due to waning expectations of an immediate rate cut and the upward shift in the yield curve.

 As the earnings season gains momentum with notable players like Amazon, Apple, and Eli Lilly shaping market sentiment, the volatility forecast remains pronounced in anticipation of the forthcoming FOMC meeting. While it is widely expected that the Fed will maintain current interest rates at the May 1 gathering, the uncertainty looms over the upcoming guidance on monetary policy. Any signals hinting at prolonged maintenance of interest rates at their current levels beyond 2024 could dampen the prevailing market enthusiasm. Hence, investors are urged to exercise patience and prioritize long-term investment prospects amidst the evolving dynamics of the market landscape.

"The United States continues to borrow all this money even though classical Keynesian theory tells us to borrow in times of recession but commit to debt reduction in times like these, when growth is good."

—New York Times Columnist David Brooks, "Why Are We Gambling with America's Future?," April 25, 2024

Take a Look at Me Now – Tesla Against the Odds


Following the trend of stock price dropping and the global 10% layoff, Tesla (TSLA) delivered grim news on Tuesday that confirmed investors' worst fears. The company reported a significant 9% drop in quarterly sales alongside a staggering 48% decrease in adjusted profits for Q1 2024, starkly contrasting with the $2.2 billion earnings of Q1 2023. Tesla's earnings report shed light on its myriad challenges, including intense market competition, production disruptions, financial strains, and product adjustments, all of which have impacted its revenue and gross profit. Production slowdowns at the Berlin Gigafactory and logistical issues contributed to a decline in Model Y production. At the same time, upgrades to the Model 3 line at the Fremont factory further affected overall output and delivery. With a negative free cash flow of $2.5 billion for the quarter, primarily driven by substantial investments in AI infrastructure, Tesla faced significant cash consumption. Investors attributed the main drivers behind the revenue declines to the costs associated with ramping up production of the Cybertruck, the heightened expenditure on research and development, and the challenges encountered during the updates to the Model 3.

Tesla Inc (TSLA) Q1 2024 Earnings Analysis: Challenges Overshadow Revenue and Earnings Declines

However, what transpired in the market defied expectations. Despite the dismal financial report, Tesla's stock price surged by an impressive 12%, driven by a revelation from CEO Elon Musk. Musk's announcement that Tesla intends to introduce a more affordable vehicle by early 2025 sparked newfound optimism among investors, overshadowing the negative quarterly results and fueling visions of a more accessible electric vehicle market.

There's no denying the visionary strategy of Elon Musk and Tesla's compelling growth narrative. With the story, Tesla has captured the imagination of investors and consumers alike with its pioneering efforts in affordable electric vehicle solutions. Besides mere financial metrics, Tesla embodies a transformative force in the automotive industry and beyond, reshaping the future of transportation and AI. Tesla has announced it will soon launch a dedicated Robotaxi and humanoid robot "Optimus." Musk revealed that Robotaxi is expected to be demonstrated in August and called it "Cyber Cab," which is possibly the project's official name, together with a preview of the taxi app. The Optimus robot will undergo limited production activities by the end of the year and may be available before the end of next year. These announcements have largely reignited investor interest, painting a compelling growth narrative and promising future. As Tesla continues to push the boundaries of technology and innovation, investors are once again drawn to the company's trajectory, seeing ample opportunities for growth and profitability ahead. Thus, investors are tempted to perceive the recent disappointing earnings report as a temporary setback, especially considering the increasingly appealing narrative surrounding Tesla. Tesla's story has gained newfound allure, overshadowing the short-term challenges reflected in the earnings report and contributing to the counterattack of the stock price.

Yet amidst the euphoria, a crucial question lingers: is the market's reaction justified, or is it merely an overreaction to Musk's forward-looking statements? Assessing Tesla's intrinsic value amid the frenzy requires a careful examination of both its past performance and future potential. A prudent market participant must exercise caution. While Tesla's vision is undeniably compelling, navigating the volatile landscape of the stock market demands a sober assessment of both risks and opportunities. The road ahead for Tesla is paved with challenges, including intensifying competition and regulatory uncertainties. As investors evaluate Tesla's prospects, they must balance optimism and realism. While acknowledging Tesla's disruptive potential and innovative prowess, it's imperative to remain vigilant against irrational exuberance and maintain a long-term perspective.



Economic Reports 4/29-5/3
Select Indices as of 4/26/24

Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.


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