Will Wall Street Flunk Elon?
Will Wall Street Flunk Elon?
The “Magnificent 7” era is over — and we have Elon Musk to thank for that.
It was three years ago when a Bank of America analyst coined the term — applying it to Alphabet (Google), Amazon, Apple, Meta, Microsoft, Nvidia and Tesla.
Not only were they all tech-adjacent, they frequently ranked as the top seven companies in the United States by market cap. Were it not for Saudi Aramco, they’d have been the top seven worldwide.
But then came SpaceX — muscling its way into the group with its IPO in June.
For a while, it was bigger than Mark Zuckerberg’s Meta. At its peak share price of $226, it threatened to overtake most of the others as well.
True, SpaceX doesn’t look quite so mighty now, trading for $112 this morning. Ranked by market cap, SPCX is No. 10 worldwide (with Tesla at No. 11).
Still… all eyes are on SPCX ahead of its first earnings report, due tomorrow.
The expectations of Wall Street analysts are all over the map.
And because SpaceX spends far more money building out AI than it does launching rockets or operating Starlink… SPCX will be put to the same test that the other “hyperscalers” were late last month.
As a refresher, Wall Street gave passing grades to Microsoft and Amazon, expecting their prodigious AI investments will pay off long term — while flunking Google and Meta.
And if SPCX likewise flunks? It might not be the only downside catalyst for the stock this week.
“A bigger overhang,” says a Yahoo Finance report, “is a lockup expiration on Aug. 6 that will free as much as 20% of shares for sale under the company's lockup plan. Many investors worry that the added supply will keep the stock under pressure.”
Yes. And still more shares unlock next week. Granted, not all of those shares held by insiders and employees will be sold right away. But Paradigm analyst Davis Wilson figures SPCX will trade for under $100 before all’s said and done.
There’s a reason — many reasons, really — that none of our editors recommended SPCX out of the box. Too many people get burned in the weeks and months after chasing a hot IPO.
Elon Musk’s vision and savvy aren’t enough to overcome that phenomenon.
About Those Chip Stocks Now…
“I do not want to rush back to buy into these chip stocks,” says Paradigm chart hound Greg Guenthner.
A quick recap of where we are and how we got here: “Semiconductors (specifically the memory trade) have produced generational gains for investors over the past several months. Micron Technology Inc. (MU) has gained nearly 700% over the past 12 months. Sandisk Corp. (SNDK) is up an eye-popping 2,700% over the same timeframe.”
And then came the month of July.
“We need to understand the emotional weight that comes with huge price moves,” Greg reminds us. “Prices aren’t just numbers. There are emotions involved. SNDK ran from the $550s to over $2,300 in less than three months.
“But hitting $1,200 on the way up back in early May feels a lot different than tumbling 50% from its highs to hit $1,200. Context matters!
So now what?
“Many speculators are going to attempt to lean on fundamentals as they convince themselves to immediately re-enter or double-down on their trades,” Greg says.
“They aren’t wrong about the numbers, of course. These growth stories are impressive, and it’s easy to make an argument that many of these stocks remain cheap despite their huge rallies this year.
“But these numbers aren’t what’s driving the market right now.
“We have a short-term downtrend on our hands following the July swoon. And until we see a convincing breakout, we have to respect this series of lower highs and lower lows.”
Example: Micron. From a double-top in June over $1,200, MU sank below $750 and this morning trades around $813. “I’d want to see the stock convincingly retake $1,000 before even thinking about a trade on the long side.”
“Time is the cure for these runaway animal spirits,” Greg concludes. “These stocks will find a floor eventually. Then, they will chop along in wide ranges. The ‘hot money’ will move to the next exciting play. Shareholder turnover will help bleed off the last bit of excess enthusiasm.
“Eventually, the stocks will set back up again for another run.”
Which we’ll be watching for…
Sure enough, the chip names are treading water while the broad market is rallying strong to start the month.
At last check the S&P 500 is up 1.3%, less than 30 points away from its record close of 7,609 on June 22. Weekly Wealth Alert editor Alan Knuckman says at this rate, a melt-up rally to 8,000 is more likely than not: “Last week’s shakeout was exactly what was needed to move higher.”
The Nasdaq is up nearly 2% but still has work to do to reclaim the 26,000 mark. The Dow is up 1% and back over 53,000.
Precious metals are starting the month quiet — gold at $4,035 and silver at $57.32. Crypto is going nowhere fast, Bitcoin at $63,630 and Ethereum at $1,861.
Treasury yields are pulling back from last week’s highs — but last week’s action has Rude Awakening editor Sean Ring on alert. “The dollar fell while yields rose,” he says.
Typically, rising long-term interest rates are a signal that the Federal Reserve is on the verge of raising short-term rates.
But not now, not with the dollar falling. Foreigners aren’t chasing higher yield; rather, they want compensation for the risk of taking on Uncle Sam’s gargantuan debt load. Seen in that light, Sean won’t rule out the 10-year note punching through last week’s 4.7% level to challenge the 2023 highs near 5%.
Another Monday, Another Peace Deal
As for the oil trade… evidently Donald Trump’s words carry more weight than attacks on physical supply.
On Saturday, Trump called off plans to launch a new round of attacks on Iran — promising once more that a deal is in the works.
Once more, the Iranian side is denying any talks are underway — and it continues to lob missiles and drones in the direction of tankers that try to transit the Strait of Hormuz without Tehran’s permission.
But U.S. oil futures are putting more weight on Trump’s words — sending the price down over five bucks and back below $80 for only the second time in the last two weeks.
It’s become the stuff of memes…
Coincidentally or not, Trump’s announced change of heart came hours after the pay-for-play scheme on his Truth Social platform went live.
Banks and hedge funds can now pay for early access to posts by the president.
“Many trading firms already plug into Trump’s posts through Bloomberg, Reuters or other services that scrape his posts and relay them in real-time to their customers,” says NBC News. “But using this data feed on Truth Social could enable firms to access his posts seconds or even milliseconds faster than the general public.”
Shortly before posting that he was calling off the new round of attacks on Iran, Trump issued this obscure post that may or may not have been referring to candlestick charts — a common form of tracking highs, lows and closes.
Depending on who you want to believe, Trump’s climb-down might have come at the behest of Saudi Arabia’s Crown Prince Mohammed bin Salman.
The Saudi Press Agency says “MBS” spoke to Trump on the phone and “stressed the need to prioritize dialogue to reduce escalation and the importance of making every possible effort to achieve calm that paves the way for diplomatic solutions”.
That sounds as if MBS was scared to death that if Trump followed through on his threats, Iran would respond by attacking oil infrastructure in Saudi Arabia and the other Gulf sheikdoms.
And so we’re back to low-grade stalemate. “A big debate is raging in Washington,” tweets the military analyst Will Schryver. “They are desperate to find a way to save face, but all the options are bad.”
Comic Relief
When Karl Marx meets a South Park meme…
The meme jogged your editor’s memory. If it seems as if socialism has caught on with the younger set only within the last decade or so, ponder this…
Way back in 1987, the Hearst Corporation commissioned a poll for the bicentennial of the Constitution. It found nearly half of those surveyed believed the phrase “From each according to his ability, to each according to his need” came from the Constitution.
Mailbag: Fake News, Flock Cameras
“People should assume the news is fake until it's proven otherwise,” writes one of our longtimers after Friday’s edition — in which Elon Musk labeled as “fake news” a report that Tesla was looking to spin off its Chinese unit.
“With regard to Elon's comment, I took it to mean that we should not trust ANYTHING we read in The New York Times or elsewhere unless we find confirmation from independent — and more trustworthy — sources.
“Sadly, I have to agree with him. I have a few trustworthy sources — 5 Bullets is high on my list — but the NYT and others of their flavor are guilty until proven innocent in my judgement. Sad, as they were quite good many years ago.”
Dave responds: To be clear, the original report Musk decried was in The Wall Street Journal. But point taken: Both the Murdochs and the Sulzbergers deserve our skepticism.
[Dave’s disclosure: I was on the Murdoch payroll at Fox Television Stations for eight years.]
“It’s rare that I see a crossover between Paradigm Press and our local news in our bucolic valley resort community, anchored by Vail and Beaver Creek resorts,” a reader writes.
“The Flock cameras have been controversially received here.”
Dave responds: Holy moly. The reader sends along a story from the Vail Daily about the town of Avon, population 6,000, and its 20 (!) Flock cameras — two of which were vandalized on July 18.
“The town put out a Facebook post about the incident, which was met with a barrage of support for the crime, garnering more than 18,000 comments,” the newspaper reports.
So the town council called a public hearing where a handful of locals spoke up. “Avon resident Maria DeSimone said she put together a petition asking the town to remove the automated license plate-reading cameras, and had received 466 signatures as of Tuesday.”
To be continued, in Avon and elsewhere. We’ll give the last word for now to this fellow on X…
