US Close: Sell the Rally, Tesla falls 10%, King dollar

Market volatility is not going away anytime soon as the ‘buy the dip’ crowd has a new motto, ‘sell the rally’.  Today’s stock market rally did not last as corporate America reminded us that supply chain troubles persist, and profit forecasts are not providing any reasons to be optimistic.  Many traders are still processing what happened yesterday with the Fed and the reality is that they missed an opportunity.  It is hard to aggressively maintain a bullish stance with equities when you know the Fed missed an opportunity going full hawk, which would lead to one last major surge in Treasury yields that would not yield a complete collapse in economic growth prospects as the Fed would be viewed as finally catching up in battling inflation.  Yesterday, the Fed should have ended their bond buying and clearly sent a strong signal for a March liftoff.

Tesla

Tesla shares tumbled after the electric car maker said they won’t be rolling out any new model vehicles in 2022.  Investors were excited that Elon Musk was participating on the earnings call, which many saw as a sign a big announcement was happening.  Musk is focusing on self-driving and on the Tesla-robot to work in factories.  Tesla is clearly running out of momentum and the lack of a launch of a low-budget car in the mid-$20,000 range really dampens the growth outlook as the competition tries to catch up. Tesla is still the EV king and given the chip and commodity shortage problems globally, this might be the right call for the company, but most analysts will hate it.

FX

The curve is flattening as front-end rates rise on expectations that the Fed may have to deliver more tightening.  Over the past eight Fed hiking cycles, the dollar weakened 75% of the time in the six months following the beginning of rate hikes. This time is much different than the recoveries seen in the 70s, 80s, 90s, and 2000s. Coming out of the COVID-19 pandemic and entering an unbalanced global economic recovery, with several geopolitical risks, the dollar could have some support from several opportunities that stem from some safe-haven purchases of Treasuries. The dollar outlook could appreciate further here as investors begin to price in four or five Fed rate hikes this year, but the growth potential abroad should limit that upside.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya