Electric vehicle (EV) bubble may have burst
Another session of turmoil seen in the overnight US session; all the major US stock indices have recorded losses with the worst performers that are heavily weighted towards mega tech stocks; S&P 500 shed -1.31% to 3,819 but it still managed to hold above the 50-day moving average at 3,817.
The Nasdaq 100 tumbled by -2.88% to 12,683 that has broken below its 50-day moving average and last Friday low of 12,925. In addition, the Nasdaq 100 had shed an accumulated loss of -8.6% from its 16 February all-time high of 13,878. The cyclical and small caps Dow Jones Industrial Average and Russell 2000 fared better with losses at a lower magnitude of -0.39% and 1.06% respectively.
The main culprit was the rising long dated US 10-year Treasury yield where it rallied to a high of 1.50% before it closed at 1.47%, a six basis points increase reinforced by the risk of a heightened inflationary environment. The US ISM Non-Manufacturing Index for February has shown that the Prices Index rose to 71.8% from 64.2% in January which indicates that higher input costs for service organisations in line with similar higher input costs for manufacturers as reported on Monday.
On the flip side as seen from the performances of the 11 S&P Sectors, cyclicals/value theme play has managed to provide some form of “cushion” for the on-going rout where Energy and Financials recorded decent gains of +1.43% and +0.75% respectively.
An important observation to note will be performances of leading electric vehicle (EV) stocks that is part of the “disruptive innovation” theme play that produced an astonishing return between 700% to 1000% in 2020. Since its current all-time of 900.40 printed on 25 January, Tesla Inc has plummeted by -27.6% to record a close of 653.20 yesterday, a clear bear market territory. Similar observations can be seen in Nio Inc (-38.6%) and Xpeng Inc (-59.7%). Hence after an overstretched valuation from several fundamental matrices seen in these EV stocks, their current respective technical analysis charts have indicated a potential bubble burst in terms of price actions which can trigger a negative feedback loop into other “euphoric disruptive innovation” trades easily.
Chart of the day – Tesla Inc in bear market territory
Source: CMC Markets
This commentary is kindly contributed by Kelvin Wong, CFTe Market Analyst & Client Education, CMC Markets