What happened in the stock market this week?

John Choong — Sat, 07 May 2022 06:50:00 +0000

The FTSE 100 saw a decline of over 2% in the first week of May. Rising interest rates and fears of a potential recession later this year stoked some panic selling in the stock market. A 0.5% rate hike across the Atlantic also soured investor sentiment.

FTSE Miners down and fliers up

That’s what many miners have been thinking as they saw their share prices slide. Antofagasta and Rio Tinto were hit particularly hard as their biggest customer, China, reported disappointing purchasing managers index (PMI) figures. The authorities in China continue to lock down major cities over Covid-19 infections.

On the flip side, FTSE airlines were rejoicing this week because of freer travel. A positive Wizz Air update led to airline shares rising higher on Monday. The budget airline carried over 3.62m passengers in April, a 542% increase. However, an only half-decent report from IAG then sent airline share prices on a descent. The group finished the week 10% lower. Nonetheless, IAG reported a positive outlook, expecting to achieve an operating profit by Q2.

Oils profits spurt

Although BP lost a hefty $25.5bn to cover its exit from Russia, it still doubled underlying profits in the first quarter, to $6.2bn. It even unveiled a US$2.5bn share buyback programme! Its competitor, Shell, also saw a tripling in profits. With oil prices back up to the $110 per barrel mark, FTSE oil investors are likely rejoicing about a 10% gain this week. There are still calls for a windfall tax, though, so that’s something to keep an eye on.

Up to 8% off!

After news that non-food inflation jumped 2.2% in the last month, retailers have seen their share prices go on sale. Big FTSE names Kingfisher, JD, and Dunelm are now trading at up to 8% discounts from a week ago.

Fed up with inflation

The US Federal Reserve increased the Fed Funds rate by 0.5%, instead of the much feared 0.75%. This sent the US markets on a euphoric 3% rally. The Fed will also begin reducing asset holdings on its balance sheet on 1 June. The high then simmered overnight as US markets plunged the next day, also negatively affecting the FTSE. This is because the majority of FTSE 100 companies earn income in US dollars. So an unfavourable exchange rate doesn’t bode well for profit margins. The pound is now at a two-year low against the US dollar.

Low house stock losing market

The Bank of England followed swiftly with a 0.25% increase to its own interest rate. This brings the UK’s bank rate to 1%. But what sent the British stock market crashing afterward was the Bank’s inflation expectations. Governor Andrew Bailey expects inflation to peak at 10% later this year, with a potential contraction of the British economy in the fourth quarter, as household incomes continue to decline.

The share prices of Lloyds and NatWest fell given rising fears of a housing crash, amid a lack of supply already in the market. After all, both Halifax and Nationwide housing data reported a decline in house price growth. This is also why I don’t think UK banks are a good place to house my money right now.

The post What happened in the stock market this week? appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tesla shares are rising: should I buy now?

Dylan Hood — Thu, 24 Mar 2022 09:20:29 +0000

Tesla (NASDAQ: TSLA) shares have had a good week, up 19% over the past five days. The primary driver behind this is the new ‘gigafactory’ which has just been opened in Berlin. While this is good news in the short term, Tesla shares are still down over 16% year-to-date (although they’re up almost 60% over the past year). So, is now the right time for me to be adding the stock to my portfolio? Or should I be steering clear of the world’s biggest EV manufacturer? Let’s take a closer look.

Reasons to be cheerful

Firstly, as mentioned, the firm has just opened a new plant in Berlin. Tesla has reportedly already hired 3,000 out of the 12,000 expected workers, so things are definitely moving in the right direction. Once the factory is at full capacity, it will be able to produce 500,000 cars annually. To put this into context, Tesla produced 930,422 cars globally in 2021, so the new factory is a huge step forward in ramping up production.

In addition to this, the firm has already been posting some excellent results. In the 2021 Q4 results, revenues reached $15.9bn, rising 71% year-on-year. A 6% rise in margins also allowed profits to rise to $4.8bn, up 118% from the same period in 2020. Tesla is also flush with over $5bn in cash and negligible debts.

Tesla shares valuation

One concern I have always had about Tesla shares is their overvaluation. The stock currently has a price-to-earnings ratio of 204. Most good-value stocks operate with P/E ratios of under 10! In addition to this, Tesla’s competitors General Motors and Toyota trade on P/E ratios of 6.5 and 9.5, respectively.

Headwinds for Tesla shares

One big risk I see for Tesla shares is the threat of rising inflation and interest rates. Both are creeping up across the globe, with the UK and US central banks both hiking rates in the last week. The problem for Tesla is that when rates rise, investors tend to pull their money out of high-growth stocks, as they can generate higher returns from safer assets. This factor could stunt the future growth of Tesla shares.

In addition to this, supply chain shortages have been causing havoc across the EV industry. These shortages have been amplified by the covid-19 pandemic. Tesla released a statement in their Q4 report explaining that “factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022”. This could be a big factor that could hold the shares back from future growth.

What I’m doing now

Overall, I think Tesla is a great company. However, in my opinion, the shares are vastly overvalued and have been since mid-2020. While I don’t think this will change anytime soon, it doesn’t mean the shares won’t continue to rise. That being said, the threats above could stunt growth. For these reasons, I won’t be adding Tesla shares to my portfolio.

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