The U.S. stock market continues its incredible run higher. Last week Tesla broke above $2,000 and became the 12th largest company in the world.
The run higher comes despite the company announcing a 1:5 split that starts in September. Investors, it seems, are unfazed by the fact that the company trades at fifteen times price to sell ratio or at a price to earnings ratio that exceeds 1000. Standard valuation metrics have lost their meaning during the 2020 stock market rally.
What Keeps Tesla So Bid?
To start with, the Fed and the USD. The parabolic move in Tesla’s share price resembles the Bitcoin’s rise to $20,000 in 2017, with many saying that Tesla will have the same fate – a sharp decline after the bubble will burst.
But what is different now is that Tesla is a company listed on the U.S. stock market. Unlike Bitcoin, this is a regulated market.
If we are to talk about bubbles and parabolic charts, then the Fed’s balance sheet looks parabolic too. In fact, it looks just like Tesla’s chart. Therefore, a sharp decline in the USD led to investors willing to accept higher risks by bidding for the stock market.
Not even the stock split announcement lowered the price. What usually happens after stock splits is that the company’s share price declines for the simple reason that more shares are available to investors. But this is an unusual market and, as such, the opposite happened.
Two months ago, Tesla broke above $1,000 for the first time. It was a major milestone for the company and for Tesla bulls. Fast forward two months, and now it trades above the $2,000 mark. Also, consider Apple. The U.S. giant needed thirty-eight years to get to the first trillion in market capitalization. However, it took Apple only 0.8 years to go from $1 trillion to $2 trillion in market capitalization.
In other words, the increase in the money supply since the pandemic started was so dramatic that the effects are visible the most on the stock market. As such, analysts now raise their target for Tesla’s share price in a frenzy. It doesn’t even matter anymore how many cars the company actually sells. At these valuations, it is impossible to sell so many to justify the levels.
Will the rally lose steam anytime soon? Without any meaningful change from the Fed, Tesla bulls will keep buying.