Attention! First aid measures are running out

The equity markets initially appeared bullish yesterday. Tesla can be named as the reason for this. The day before yesterday after the close of trading in the USA, the company reported figures for the second quarter. And these were above expectations. Investors were delighted. Because in the current reporting season, expectations are currently being beaten in rows. And on the stock market, we know that stock prices often rise when expectations are beaten. As a result, investors continued to buy Tesla shares again, which rose sharply and took other stocks with them. So far, so bullish.

Price trends and fundamental key figures are disregarded

But investors no longer seem to be paying attention to how far a share has risen before the business figures are published. Price trends and fundamental valuation indicators are apparently completely disregarded. And you have to observe this with great skepticism. Because investors are currently no longer looking so closely, they have a “tunnel view” and thus only see the positive and overlook or ignore the negative.

Positive: Tesla beats expectations

Let’s stay with Tesla. Analysts had expected sales of significantly less than $ 6 billion on average. In fact, it was $ 6.04 billion. So here expectations were struck. This also applies to the profit. The bottom line was an increase of $ 104 million for April to June. That makes $ 0.50 per share. Average expectations were less than half. Reason enough for investors to push the stock further.

Negative: Tesla only profitable through one-off effects

But there were some catches. For example, Tesla’s second quarter sales decreased 5% (!) From $ 6.35 billion previously. And you should know that a company can be included in the S&P 500 if it has made a profit in four consecutive quarters. Tesla has succeeded in doing this with its latest annual report. But here it is very likely that all options for achieving this goal have been deliberately exhausted.

On the one hand, Tesla benefited from temporary wage cuts during a corona virus-related production freeze. In addition, compensation payments that other automakers pay for their cars to generate more emissions increased 21% to $ 428 million. And then Tesla made $ 420 million in sales of regulatory tax credits. If you only add the latter, the company was no longer profitable.

Extremely high P / E ratio at Tesla

And even if Tesla can continue to earn $ 0.50 a quarter – with a current share price of around $ 1,700, the price-earnings ratio (P / E) will be 850. If you assume that profits will rise sharply and double, it would be the P / E ratio is still over 400. But investors don’t care. You buy the stocks as if there was no tomorrow. The share price has quadrupled since the beginning of the year alone. – As I said: the previous course and fundamental valuation indicators are apparently completely disregarded.

Twitter shares rise despite the loss of billions

This also applies to Twitter, among other things. The company has reported that the number of active users per day has skyrocketed by 34% to 186 million – the highest increase in a quarter. Analysts had “only” expected an increase to 176 million. Again: expectations beaten = pure in the stock. It is often ignored that the company already weighs more than $ 26 billion on the stock exchange. This is despite the fact that the drop in advertising revenue as a result of the Corona crisis has caused a loss in the second quarter. With sales down 19% (!) To $ 683 million, a drop of $ 127 million was recorded, the company said today. After tax, the drop from special tax effects related to activities in Ireland was as high as $ 1.2 billion (!).

Rising unemployment claims cloud the mood

But there are apparently still reports that can cloud the mood on the stock market. Yesterday at 2:30 p.m. (CEST), the number of weekly applications for state unemployment benefits was released in the United States. And this has risen again for the first time in four months. Last week, 1,416 million US citizens made an initial application, 109,000 more than in the previous week. Economists surveyed by Reuters had expected 1.3 million

Initial jobless claims in the United States

(Source: U.S. Department of Labor)

This put significant pressure on stock prices. For example, the Dow Jones future lost more than 200 points. The reset is still within limits with -0.9%. But the price reaction is a first indication that investors can still be allergic to poorer economic data. And it is very possible that the recovery in the economy (data) will stall.

Aid measures expire

The rise in initial applications is a first indication that the current rise in new infections on the labor market is having a negative impact in the United States. And as we told the readers of the premium trader yesterday, 70% of the people currently receiving unemployment benefits in the United States are earning more from a temporary increase in social benefits than in their previously lost jobs. As of yesterday, this additional aid expires at the end of the month. If this remains the case, this could put a damper on the recently surprisingly high retail sales (see stock exchange internal of June 16) and lead to a slowdown in the recovery of further economic data.

In addition, in the USA, similar to this country, loan repayments (credit cards, car loans, mortgages) could be temporarily suspended. But this deferral of installment payments is also expiring. Republicans and Democrats are currently negotiating new aid. But no agreement is in sight yet. And if it stays that way, there is a risk that some borrowers will not service the creditors’ claims, possibly because they have slipped into unemployment.

Many problems were only postponed

In other words, government aid has only shifted some problems from the current crisis into the future. But this future is starting slowly. And so, especially in the United States, without the agreement of the Republicans and Democrats, there could be loan defaults and bankruptcies, which have a negative impact on the economy and economic data. I therefore remain skeptical about the stock markets, also because there have recently been new clear signs of a clear exaggeration in technology stocks, which we also reported on yesterday in the weekly edition of the Premium Trader. (With a free trial subscription you have access to the archive and the weekly edition.)

I wish you much success in trading
Sven Weisenhaus


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