A Tesla for Everyone | 10-29-21

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: A Tesla for Everyone!

Tesla stock exploded higher this past week, crossing the $1,000 per share market as well as the $1 trillion market capitalization milestone, leapfrogging over Facebook (which previously reached $1 trillion in market cap, but has since fallen below) to become the 5th largest U.S. company, joining Apple, Microsoft, Google and Amazon over $1 trillion in market value.

In just two trading sessions, Tesla added more market value to its stock than both Ford and GM, COMBINED!

The jump was catalyzed by an order from Hertz to purchase 100,000 Tesla vehicles for its rental fleet, as well as progress on the fiscal package in Washington that will add further incentives to push electric vehicles into the mainstream.

Bears say that despite Tesla’s bright future, the stock is simply too expensive to be justified by even the rosiest of scenarios.

Bulls counter that Tesla is a technology company that has business opportunities and future revenue streams that extend far beyond just vehicle manufacturing.

The truth is probably somewhere in between, but I’d be very careful buying the stock at this price.

Featured Insight: Not All ETFs Are Created Equal

For you novice investors, ETF stands for Exchange Traded Fund, which is a fund that trades all day on the exchange like a stock as opposed to traditional mutual funds that trade only on the daily closing price.

While ETFs became popular for indexes like the S&P 500, there are now ETFs for almost anything you can imagine with nearly 8,000 total issues currently trading.

While owning index or sector ETFs is fairly straightforward, two types of ETFs that investors should take extra caution in trading are leveraged ETFs and commodity-based ETFs.

Leveraged ETFs that claim to deliver three-times the upside of a particular market index may do so on any given trading day, but they are not meant to be long-term holdings. Depending on the sequence of returns, results could end up being far different than you might expect.  

Commodity-based ETFs must periodically roll over futures contracts, which can be extremely costly. Case in point, even though the price of crude oil is roughly 60% higher than it was five years ago, the most heavily traded Oil ETF is actually DOWN more than 30% over the same timeframe.  

When buying ETFs, take extra care to know exactly what you’re buying and how it works.

Looking Ahead: Taper On Deck

You’re probably sick of hearing me talk about the Federal Reserve tapering its bond purchase program. I’m sick of talking about it. This is probably the most widely telegraphed central bank policy pronouncement in the history of central banking.

Nevertheless, it is in fact a rather important event for the financial markets. After roughly 18 months of thinking about reducing its monetary injections into the bond market, the Fed will in all likelihood announce their plan to do just that.

Will this be a death-knell for stocks? Probably not. It is, however, an important inflection point in a market that has been riding high on liquidity for the past year-and-a-half. A higher level of volatility is certainly a possibility in the months ahead.

Copyright 2022 The Business Journal, Youngstown, Ohio.