Is the Elon Musk Super Influencer Rally Sustainable
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There may be no bigger winner from the U.S. presidential election cycle than Elon Musk. His rise from innovative thinker to social media king to presidential advisor has completely reinvigorated Tesla’s stock. At the beginning of the year, Tesla was essentially flat on the year. Now, it’s nearing a gain of 100% year-to-date1.
Musk’s proximity to the White House is almost certainly a positive. Even though green initiatives and electric vehicles, such as Musk’s Tesla is very likely to face headwinds in the next presidential administration, we believe he’s also likely to tip the scales of policy decisions in favour of himself and his company.
While one doesn’t need to be a chartist to conclude that momentum is incredibly strong at the moment, has it gotten to the point where it’s way overdone?
source: StockCharts
Tesla is obviously way above all of its moving averages, including more than 100% above its 200-day2. The shorter-term 50-day moving average3 had been acting as a level of support over the past few months specifically, but it bounced hard off of that level around election day.
The MACD indicator4 right now is as positive as it’s ever been since Tesla went public. The closest it’s come to its current level was back in late 2021 when the stock rose from around $245 to $410 over the course of roughly two months5. That just preceded the 2022 bear market, generally defined as a loss of 20% or greater, which saw Tesla retreat all the way back to nearly $100 from peak to valley6. This is unquestionably the best run for this stock since the year following the COVID pandemic bottom.
Relative strength is also at historically high levels. The RSI (or relative strength index), which, according to Investopedia, “measures the speed and magnitude of a security's recent price changes to detect overbought or oversold conditions in the price of that security”, of 81 is a year-and-a-half high and well into short-term overbought territory. The Chande Trend Meter, another momentum indicator which, according to StockCharts, is “based on several different technical indicators covering six different timeframes”, is telling a similar story, nearing an all-time high of its own.
At some point, we feel the stock would be well served to take a breather in order to digest gains and reset for the next leg. Even a brief consolidation period might not be the worst thing. The current forward P/E ratio, which measures a stock’s current price against its expected per share earnings for the next 12 months, for Tesla is now more than 1007, although this has never been a stock to trade on traditional valuations.
If you’re looking for an easy way to add enhanced Tesla exposure to your portfolio, consider the GraniteShares 2x Long TSLA Daily ETF (TSLR).
Momentum and Market Sentiment
Elon Musk’s ability to shape market sentiment is unparalleled. As CEO of Tesla and SpaceX, owner of X (formerly Twitter), and an advisor with significant political access, Musk’s actions and words have far-reaching consequences. Tesla’s extraordinary stock rally in 2023 highlights this influence. While the broader market has been relatively flat, Musk’s growing prominence in politics and media has reinvigorated investor confidence in Tesla and related sectors.
Tesla’s strong price momentum, driven in part by Musk’s proximity to policymakers, underscores the impact of personal branding on financial markets. This phenomenon—where individual figures can move markets—raises questions about sustainability. Market history is rife with examples of stocks propelled by celebrity influence, but such rallies often face significant corrections as fundamentals catch up to hype.
Policy Implications: The Musk Advantage
Musk’s role as a presidential advisor and influencer might positions him uniquely to navigate potential regulatory headwinds. While green energy initiatives may encounter resistance in the coming administration, Musk’s ability to advocate for his companies could mitigate these challenges. Tesla’s leadership in EV technology and Musk’s broader vision for sustainable energy align with long-term global trends, potentially offsetting short-term political risks.
Moreover, Musk’s involvement in discussions about artificial intelligence, space exploration, and infrastructure investment could lead to policy decisions favorable to Tesla and SpaceX. His knack for capitalizing on political and technological shifts ensures his enterprises remain at the forefront of innovation and growth.
Valuation Concerns: Ignoring Traditional Metrics
Tesla’s valuation has always been a point of contention. With a forward P/E ratio exceeding 100, traditional metrics might suggest the stock is potentially expensive. However, Tesla’s valuation narrative has never adhered to conventional norms. Investors prioritize its disruptive potential in EVs, renewable energy, and autonomous driving over its near-term earnings.
While this growth-oriented mindset has served Tesla well, it’s worth noting that high valuations amplify the risks of market corrections. A shift in sentiment, driven by external factors like interest rate hikes or geopolitical tensions, could lead to sharp declines. Investors must weigh the potential rewards against these inherent risks.
Sector-Wide Implications
Tesla’s rally has broader implications for the EV and clean energy sectors. As the industry leader, Tesla’s performance often sets the tone for competitors like Rivian, Lucid Motors, and traditional automakers pivoting to EVs. A sustained rally could attract increased investment in the sector, while a correction might dampen enthusiasm.
Moreover, the “Musk effect” extends to other areas, such as AI and space exploration. Companies with ties to Musk or overlapping ambitions could see spillover benefits or challenges based on Tesla’s performance. Investors should monitor sector dynamics closely to identify opportunities and risks tied to Musk-driven narratives.
Managing Risk in a Musk-Driven Market
For investors, navigating a market influenced by Elon Musk requires a balanced approach. Diversification is critical to mitigate the risks associated with overexposure to any single stock or sector. Leveraged ETFs, such as the GraniteShares 2x Long TSLA Daily ETF (TSLR), offer opportunities to amplify returns but also come with heightened volatility.
Incorporating risk management tools, such as stop-loss orders or hedging strategies, can help protect against potential downside. Additionally, maintaining a long-term perspective and focusing on underlying fundamentals will be crucial as the market reacts to Musk’s ongoing influence.
Conclusion: The Road Ahead for Tesla and Musk
The “Elon Musk: Super Influencer” rally underscores the profound impact of individual personalities on modern financial markets. While Tesla’s current momentum is undeniably impressive, investors should remain vigilant about potential risks. The interplay between technical indicators, valuation metrics, and policy developments will determine the sustainability of this rally.
As Musk continues to shape the narrative around technology and innovation, his influence on markets is unlikely to wane. However, the challenge lies in discerning whether this influence translates into lasting value or transient market euphoria. For those looking to capitalize on Tesla’s trajectory, products like the GraniteShares 2x Long TSLA Daily ETF provide an accessible and dynamic investment option.
Sources
1source: StockCharts, as of December 26, 2024
2source: StockCharts, as of December 26, 2024; Tesla’s stock price = $457.29, Tesla 200-day moving average = $235.07.
3source: StockCharts, as of December 26, 2024; Tesla’s stock price = $457.29, Tesla 50-day moving average = $334.44.
4According to Investopedia, the MACD (or moving average convergence/divergence) indicator is “a technical indicator to help investors identify price trends, measure trend momentum, and identify entry points for buying or selling.”
5source: StockCharts; Tesla’s stock price on November 4, 2021 = $409.97, Tesla’s stock price on September 20, 2021 = $243.39.
6source: StockCharts; Tesla’s stock price on December 31, 2022 = $108.10.
7source: Yahoo Finance
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