The market gives and the market takes away. Our more aggressive recommendations spent most of the week rallying but then yesterday they unwound the biggest gains. Tesla is a good example of how the tide turned and why we suspect it's transitory.
The BMR universe is still up a bit (0.5%) for the week but we were a lot happier about 20 hours ago. Our stocks were rocking. Some of you were writing in to cheer. Then the mood swung and several of our highest-flying recommendations ended the day in negative territory. High Tech and the Aggressive group both retreated 3%. The classically defensive REITs and High Yield portfolios edged up. Even the core Stocks for Success sagged despite Apple and Alphabet holding onto a ragged bit of upside.
It looks like just another rotation driven by investors deciding to reduce exposure to risk assets ahead of what could be another news-filled Friday. We're cautiously optimistic on the March employment numbers since the economy doesn't feel as icy as some people dread. The odds are quite good that U.S. job creation bounced back after a miserable shutdown-fueled February. However, the stakes are extremely high. An unexpectedly bad number would come as a shock and feed what we consider counterproductive recession fears. Clearly investors who didn't want to deal with that possibility retreated to the sidelines a little early.
In the meantime, we consider Tesla (TSLA: $268, down 8% yesterday; 4% this week) a good illustration of the exaggerated nature of the market's mood swing. Elon Musk's brainchild was up 4% for the week before sales numbers came out that some headlines called "the worst in history." We respectfully disagree.
Tesla rolled out 63,000 Model 3 sedans last quarter, or roughly 4,800 a week. That's up 2.5% from the last quarter of 2018, which was itself 15% better than the quarter before that. It's hard to argue that's the "worst in history." The Model 3 numbers are going in the right direction.
But overall production dipped thanks to a downswing in the number of higher-end Model S and X cars rolling off the assembly line. That's no surprise. Tesla laid people off and reduced assembly line hours on that side of the company in order to divert resources to the mass-market Model 3.
We believe Model 3 production will keep ramping up. Musk has promised that the current factories can pump out 7,000 of those cars a week for an aggregate revenue hit of $12.7 billion a year. Right now the lines are still only running at 70% of that peak capacity, so there's room to prove that this was just a temporary scaling glitch.
That said, deliveries were off as well. We were hoping to see Tesla pre-sell every car that came off the line last quarter, but instead there was a lag of roughly 14,000 Model 3 sales. We suspect a lot of that demand was pre-loaded into the previous quarter and so the comparison is naturally going to be tough. Shipping cars to China and Europe is also going to be a drag until the supply chain is ironed out. We'll know more as the current quarter progresses.
In any event, it wasn't fantastic news for the company, but it wasn't the kind of disaster that deserves an 8% downswing either. From the similar moves our other growth-driven stocks delivered yesterday, we suspect it's less about the news and more about the market mood. When the mood changes, the news won't look so bad.
And Elon Musk got good news overnight. The SEC won't hold him in contempt for his Twitter conversations after all. That's something for his fans to cheer.