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Feb. 7, 2020, 9:39 a.m. EST

A ‘technical correction is inevitable’ for Tesla, says global bubble report

U.S. stock futures weaker even after strong jobs report

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By Steve Goldstein, MarketWatch


Reuters
Tesla Chief Executive Elon Musk has reason to smile.

Tesla is reminiscent of the dot-com bubble—many believe there is an overvaluation, but those who try to short the stock get burned.

The monthly global bubble status report from the Financial Crisis Observatory, which is put together by ETH Zurich’s Department of Management, Technology and Economics as well as Systematic Investment Management, has devoted a special section to the electric-vehicle producer.

“Weak fundamentals, high valuation and lots of exciting good news: it is a typical dot-com-like bubble and very dangerous for short sellers,” the report says, comparing the Tesla situation to Julian Robertson’s bet against technology stocks in 2000.

Tesla /zigman2/quotes/203558040/lastsale TSLA -2.61%  shares, even after a bit of a pullback, have still stormed 79% higher in 2020.

“In the short term, the speculative sentiment pumped up Tesla’s market cap to more than $160 billion, while in the long term, the green energy and electrical automobile tides are forming. Thus, a technical correction is inevitable. When a correction will be coming, the sky-high valuation of Tesla (lack of reasonable fundamentals to justify the price) will become the last dagger to sting the foam,” the report says.

The report also sounded a dark note on the global economy. “Rising stock prices such as Tesla is no indication of increased wealth in absence of real economic growth. Rising stock prices are an indication of an erosion of purchasing power of the currency,” the report said. “The middle class is already facing recession-like pressure. The majority of people continue to become poorer as the cost of living outpaces any real wage growth. Most people are already living in recession even when stocks are going up, their medical, college costs and taxes are going up.”

The buzz

The jobs report came in stronger-than-expected: 225,000 new nonfarm jobs created in January, after gains in construction, health care and transportation and warehousing. There also was a modest increase to November and December employment.

Wage growth accelerated to 3.1% over the year.

Overseas, German industrial production collapsed 3.5% in December. China canceled the release of its trade data altogether, saying it will merge the January report with February data.

Mainland China reported 73 more deaths from the coronavirus as Japan said 41 new cases were found on a quarantined cruise ship.

Uber Technologies /zigman2/quotes/211348248/lastsale UBER -2.99%  rose after the taxi service forecast a profit earlier than expected, as its loss in the fourth quarter wasn’t as steep as analysts had feared. EBay /zigman2/quotes/204653455/lastsale EBAY +0.07%   shares fell after the Intercontinental /zigman2/quotes/209108507/lastsale ICE +1.79%  said it was no longer interested in buying the company.

Nokia /zigman2/quotes/207421390/lastsale NOK -4.44%  and Ericsson /zigman2/quotes/208932705/lastsale ERIC -2.63%  rose in European trading as U.S. Attorney General William Barr said U.S. companies should consider buying a stake in the telecom equipment makers to thwart China’s Huawei. Credit Suisse /zigman2/quotes/202835784/lastsale CS -6.30%  fell after the resignation of Chief Executive Tidjane Thiam amid a spying scandal. SoftBank /zigman2/quotes/207303954/delayed JP:9984 +2.89%  shares surged in Tokyo after a report that activist investor Elliott Management bought a $2.5 billion stake.

The markets

There was a gloomy tone to Friday’s trading, even after the strong jobs report. U.S. stock futures /zigman2/quotes/209948968/delayed ES00 -0.16%   /zigman2/quotes/210407078/delayed YM00 -0.13%   /zigman2/quotes/210219788/delayed NQ00 -0.13%  declined, as did European /zigman2/quotes/210599654/delayed XX:SXXP -3.26%  and /zigman2/quotes/211618636/realtime XX:ADOW +1.23%  stocks.

The yield on the benchmark 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%  fell 6 basis points.

Random reads

Anger is growing China over the death of the coronavirus whistleblower .

Fungi that eat radiation were discovered inside the Chernobyl nuclear reactor .

Climate chaos has caused widespread losses of bumblebees, according to a study .

Amazon /zigman2/quotes/210331248/lastsale AMZN -2.83% founder and Chief Executive Jeff Bezos, seller of $3.5 billion in stock over the last week, reportedly has splashed out $70 million on two paintings .

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Steve Goldstein is MarketWatch markets editor for Europe. Follow him on Twitter: @MKTWgoldstein.

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