Tesla is the leading manufacturer of electric vehicles (EVs) in the US and second, behind BYD, in the world. Despite its strong position in the EV market, Tesla is only the fourteenth largest auto manufacturer. Despite its low ranking, it has a market capitalization that is almost four times that of Toyota, the second-largest auto manufacturer by market capitalization. Why is that? The primary rationale in investors’ minds appears to be the promise of robots, not EVs. To wit, on Monday, Elon Musk reiterated that Tesla’s Optimus Robots will drive 80% of Tesla’s value. In November 2024, he stated:

Optimus will be more valuable than everything else at Tesla combined

If Musk is correct, the company will likely shift its focus away from EVs. Currently, automobiles account for approximately three-quarters of Tesla’s revenue. The graph below, courtesy of SimpleVisor, shows that Tesla’s revenues have been flat since 2023. Therefore, given its enormous valuation and paltry growth, investors are likely making a big bet that Tesla will dominate the home and business robotics market. Furthermore, they must think that robots will be a standard feature in most homes and businesses. We leave you with a paragraph from Yahoo Finance:

Speaking at the Tesla Owners Silicon Valley’s X Takeover event in 2024, Musk said, “I think that’s probably correct if we execute well on autonomous transport and Optimus,” in response to claims that Tesla could reach a $25 trillion market capitalization in the future.

What To Watch Today

Earnings
 

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Economy
 

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Market Trading Update

Yesterday, we discussed that the market had broken the 20-DMA, which has been running support for the market since the April lows. However, as is always the case, a break of support needs to be validated by either a close below that level by the week’s end, or a test and failure of that broken support. These two straightforward rules tend to keep investors from getting whipsawed by short-term volatility. On Thursday, the market traded back above the 20-DMA, potentially invalidating that support break on Tuesday. If the market can remain above that level through Friday, the bullish market trend and support will remain intact. If it doesn’t, we may see a quick test of the 50-DMA.

As shown in the chart below, there is a lot of volume at both the 20 and 50-DMA. This is where the majority of programmatic and systematic trading takes place. You will also notice the large volume at the 200-DMA. This suggests that many algorithms are set to buy dips toward the 50-DMA. However, breaking that level will likely flip those programs to “sell mode” until the market reaches the 100 and 200-DMA. The gap in buyers between 6100 and 6250 suggests an “air pocket” where prices could move sharply lower as the algorithms sell stocks down toward the primary support levels.
 

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The market remains bullish biased, but correction risks are still prevalent given the negative divergence in momentum and relative strength. As investors, continue to focus on what matters to your investing outcomes.

• Avoid the “herd mentality” of paying increasingly higher prices without sound reasoning.
• Do your research and avoid “confirmation bias.” 
• Develop a sound long-term investment strategy that includes “risk management” protocols.
• Diversify your portfolio allocation model to include “safer assets.”
• Control your “greed” and resist the temptation to “get rich quick” in speculative investments.
• Resist getting caught up in “what could have been” or “anchoring” to a past value. Such leads to emotional mistakes. 

Simple rules, but always hard to follow in bullish markets.

Trade accordingly.
 

JOLTs

Like other employment data, the latest JOLTs report shows weakness in the labor market. The headline Job Openings figure fell to 7.18 million, down from 7.36 million. Moreover, last month’s number was revised lower by 100k. Pertinent to Friday’s BLS data, the layoff level rose to 1.81 million, up from 1.64 million the previous month. Additionally, last month’s layoffs level was revised higher by 400k jobs. The second graph below shows the steadily higher trend in layoffs. Furthermore, the recent level of layoffs is comparable to pre-pandemic numbers.

The data further supports the market’s notion that the Fed will cut rates at the September 17th FOMC meeting. The JOLTs data boosted the odds of such a rate cut to 92%.
 

Valuations Are Extreme: Navigating A Bubble

Some pundits warn that, given extremely high stock valuations, one should sell everything. Yet, despite having the same information, other pundits show little concern and believe the bull market has further to run. The stark contradiction of opinions in today’s market leaves many investors understandably confused and anxious about what to do.

Based on valuations, there’s no denying we’re in a bubble. That’s noteworthy by itself, but it doesn’t tell us what will happen next. Tomorrow could be the day when valuations start returning to their historical norms. Or, valuations might become even more extreme, and the bull market could surpass all expectations before finally falling back to reality. 

READ MORE…
 

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