As major US stocks mount a massive comeback following Fed Chair Jerome Powell’s dovish comments, the Nasdaq is roaring into recovery mode. Curiously, the tech stock leading the march higher is the much-maligned Tesla (TSLA), up more than 7% on the day.
2 FACTORS POWERING TESLA STOCK’S RECOVERY
It is no secret that Tesla and Elon Musk have been battered by a relentless storm of bearish news this year. Whether it be wild cash burn or a lack of consumer demand, the EV manufacturer has seen its share price devastated.
So what is helping it outperform the entire Nasdaq today? Two crucial factors.
1. SECRET CASH LINE SUPERCHARGES TSLA SHARES
First of all, there is the simple fact that TSLA is deeply oversold. Nearly every momentum indicator suggests that the stock may have fallen too far, too fast. This means that even the slightest bit of good news can create an oversized positive reaction in the market.
On Monday, we saw precisely such a piece of news, as it emerged that Tesla had a secret cash lifeline selling emissions credits to Fiat Chrysler and GM. We finally know how Elon Musk was keeping the company’s head above water.
2. INVESTORS SHUN NASDAQ DURING RISK-OFF CYCLE
Second, the Nasdaq has been underperforming both the S&P 500 and Dow Jones Industrial Average in times of market stress. This is primarily because it contains a large contingent of money-losing tech companies.
Investors tend to prefer shares that have a robust bottom line during risk-off cycles. Add to this the fact that mega stocks like Google, Apple, and Facebook face a concerning Federal anti-trust probe.
An additional funding source alone wasn’t going to be enough to push Tesla stock higher. However, when combined with the positive sentiment that erupted in the Nasdaq, it created the right incubator for TSLA to outperform.
MORGAN STANLEY: TESLA STOCK NEEDS A TRADE WAR RESOLUTION
However, the recovery might not stick. In a report by Adam Jonas at Morgan Stanley, the analyst indicated that while demand may return for Tesla’s cars, the same might not be true for Tesla stock.
”While we believe the current lull in demand may be transient and see a bridge to far stronger demand in 2020, we acknowledge that heightened concerns about global trade (specifically regarding China, upon which Tesla is increasingly dependent) may limit the market’s enthusiasm.”
Ultimately, TSLA’s move today is all about the broader market appetite for risk. Traders will be gambling on a resolution to the China-US trade war to supercharge demand for its cars. Nothing would bolster demand for Tesla stock more than a green light in the world’s second-largest economy where they are so heavily invested.
Tesla stock last traded at $192.65 for a session gain of 7.65%.