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Nasdaq Drops on Tesla (TSLA) Sell-Off, but From High Valuation

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Markets closed mostly lower among major indexes in this first day of a new trading week. In fact, although the Dow did close up 29 points at this afternoon’s bell, it had come well off intra-day highs up 160 points at one stage. The Nasdaq hived off a full 2.46% on the day — its worst single-day performance since January 27, and closed at a three-week low. The S&P 500 and the small-cap Russell 2000 also finished in the red today: -0.78% and -0.69%, respectively.

There was not so much a major event that shook the markets today, considering strengthening 10-year interest rates — up 25% in the past month, now sitting at 1.365% — and a new upward guide from Bank of America (BAC - Free Report) (which now expects +6.5% full-year GDP growth, which would be the strongest in 40 years). It felt more like melting snow sliding in big chunks off the roof (ask somebody from Texas). We expect big economic figures along with lots of earnings reports this week, but not starting until tomorrow morning.

Looking at the day’s sell-off, in the Nasdaq especially, even though volumes of selling activity were heavier than a normal profit-booking exercise, that’s probably what we’re seeing here. For instance, Tesla (TSLA - Free Report) fell 8.5% on the day. However, pull back year over year and we see gains of more than 325%. If there was ever a company where a pullback might be expected, it’s Tesla. A great company, no doubt, with a bright future ahead. But when a company carries a P/E around 200x forward earnings, some gravitational pull is bound to occur.

Yes, Tesla is pressing pause on new orders for its lower-priced SUV, the Model Y, by $1000 to just below $40K. But this is a vehicle that has already started to deliver in China, albeit at a lower price point than expected. The entire electric vehicle market got dinged by investors today, though, and that’s the main point here. Tesla is going to be fine, and so is the Nasdaq. We’re just seeing a little push-pull on the day-to-day trading activity.

We’ll check earnings and economic results as the week winds out for a clearer sign of what to expect from the future in the market. We’ll also hear from Fed Chair Jay Powell both tomorrow and Wednesday.

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