The rotation away from the market’s riskiest assets abated Tuesday as dip-buyers sent the Nasdaq 100 to a 3% gain while Treasuries climbed higher.
Beaten-down tech shares led the jump, with Tesla Inc. rallying 14% and the ARK Innovation ETF surging. A smaller advance for the Dow Jones Industrial Average brought it near a record. The 10-year Treasury yield slumped to 1.54%, while Bloomberg’s dollar index slid 0.5%.
Tesla Inc. shares rebounded on Tuesday after a five-day losing streak wiped out about $149 billion from the company’s valuation.
A steady stream of positive news — including an upgrade from a Wall Street analyst, a rally in the cryptocurrency Bitcoin and a broader turn in sentiment toward high-multiple technology stocks — are luring investors back to electric-vehicle makers, and Tesla.
Shares of the Elon Musk-led company jumped as much as 14% on Tuesday, after falling 22% in the past five sessions. Precipitous drops, however, are nothing new for Tesla investors. The stock has seen three sharp selloffs of more than 30% in a span of about a month since the beginning of 2020.
While the market has recently soured on expensive growth stocks like Tesla amid a rise in Treasury yields, shares of the EV maker have also been hit hard as a slew of legacy carmakers this year announced their plans to aggressively push into the electrification trend.
Yet, a steep rout in the stock can be an opportunity to buy the shares. On Tuesday, New Street Research analyst Pierre Ferragu upgraded Tesla to buy from the equivalent of a hold, saying the company has two years of earnings momentum ahead and its demand outlook is stronger than supply could ever be.
New Street’s forecast implies Tesla could deliver $12 of EPS in 2023, the analyst said in a note. Average analysts’ profit estimate for the period stands at $7.73 a share, according to data compiled by Bloomberg.
“With such earnings revision, we would expect the stock to remain in the upper end of the 50-100x range, similar to where Amazon traded on for almost a decade, and below today’s multiple of 100x,” Ferragu said.
Smaller EV-makers and suppliers also rallied, including shares of Nio Inc., XPeng Inc., Workhorse Group Inc., Nikola Corp., Li Auto Inc. and Canoo Inc. The Chinese names have also been boosted by a narrower 4Q loss from XPeng and on reports that Nio and Xpeng were considering second listings in Hong Kong.
Markets have been gripped by volatility in tech stocks in recent weeks, with the selling sending the Nasdaq 100 down as much as 11% from its record. That corner of the market got a reprieve Tuesday, with stocks from Asia and Europe also notching gains.
Investors will be closely watching Treasury sales in the coming days, with the U.S. planning three debt auctions totaling $120 billion. The sales will test appetite for the safest debt after last month’s poorly bid auctions sent shockwaves throughout global markets and short bets climbed to a record. Benchmark 10-year yields breached the 1.6% level to trade at a one-year high last week.
“Progress on U.S. fiscal stimulus has perhaps helped steady risk appetite, but U.S. longer-term yields stabilizing around the 1.6% level is also helpful for sentiment, and a bit of a drag on the dollar’s performance,” said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.
Prospects of accelerating growth have driven up borrowing costs in recent weeks, raising the specter of inflation and unsettling tech stocks with long-term growth horizons. Treasury Secretary Janet Yellen sought to allay fears that runaway inflation could damage the economy on Monday.
“I really don’t think that’s going to happen,” she told MSNBC. Inflation before the pandemic “was too low rather than too high,” she noted.