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Tesla surge pulls up Chinese EV stocks in tech sector rebound

Elon Musk
Musk has also been known to move markets and the value of cryptocurrencies with a single tweet, but his main terrestrial influence for now is with his electric vehicles. Photo: Reuters

(ATF) Tesla led a sharp rally in US technology stocks on Tuesday March 9 that pulled up prices for Chinese electric vehicle (EV) firms Nio and XPeng, and the Nasdaq rose 4% to recoup heavy losses from the previous session as US bond yields retreated.

Tesla jumped 20% for the biggest gain in almost a year, while Amazon and Microsoft posted the biggest single-day gains in five weeks. The tech firms had suffered sharp losses in recent weeks as rising Treasury yields raised concerns over their high valuations.

Chinese EV firms Nio and XPeng, which compete with Tesla, have recently been tracking the stock movement of the bigger firm and benefited from Tesla’s rally, with Nio’s Nasdaq-listed shares closing the US trading day up 17.5% and rising further in after-hours trading, while XPeng was up 11.3% in regular trading and added another 3.75% after hours.

The Nasdaq posted its biggest single-day rise since November 4 as fears of higher Treasury yields receded for a while. The Dow set a record intraday high but pulled back from earlier gains at the close.

The 10-year Treasury yield fell as low as 1.523% after hovering near 13-month highs of 1.613% on Monday. Longer-dated yields have jumped over the last month as investors price in a faster rebound and higher inflation than was expected at the start of the year.

The market is adjusting to the new level in interest rates, Kristina Hooper, chief global market strategist at Invesco in New York told Reuters.

Companies whose products and services are in demand when the economy is doing well, known as cyclicals, and small-cap stocks will outperform this year, she said. Tech will end the year higher but not be the leader as it was in the past year’s rally.

“Today the 10-year is down a bit, and that takes pressure off valuations, so tech is performing well,” Hooper said. “The market is just about getting comfortable at this level of rates.”

Rising rates disproportionately hurt high-growth tech companies because they are valued on earnings expected years into the future rather than profits earned in the short term.

The Dow Jones Industrial Average rose 30.3 points, or 0.10%, to 31,832.74, the S&P 500 gained 54.09 points, or 1.42%, to 3,875.44.

The rise in Treasury yields has accelerated a rotation from “stay-at-home” winners to stocks primed to benefit from the economy’s reopening, setting the blue-chip Dow on pace to end at a record high on Tuesday.

While the Russell 2000 growth index jumped 3.3% on Tuesday, compared to a 0.1% rise in the Russell 2000 value index, it has sharply underperformed its value counterpart since the start of the month.

Big Tesla rebound, GameStop jumps

Shares of Tesla rebounded 20% from a deep sell-off that pushed shares down 37% from its peak in January to Monday. It was the largest percentage gainer on both the S&P and the Nasdaq 100 on Tuesday.

The global economic outlook has brightened as vaccine rollouts gain speed and the United States launches a massive new stimulus package, the Organization for Economic Co-operation and Development said, hiking its 2021 growth forecasts.

The Democrat-controlled House of Representatives will take up the relief bill on Wednesday, with the chamber’s expected approval leading to President Joe Biden’s signing the legislation into law later this week.

The bank index fell 1.7% after vaulting to a new 14-year peak. Economy-linked financials, materials and industrials hovered near record highs.

GameStop also rallied 27%, building on Monday’s gain of over 40% on speculation that small investors will pour stimulus checks into markets.


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Jon Macaskill

Jon Macaskill has over 25 years experience covering financial markets from New York and London. He won the State Street press award for 'Best Editorial Comment' in 2016


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