May 22, 2024
In 2010, Elon Musk had big plans for Tesla. Listen to his predictions

Premarket stocks: Elon Musk is now an A-lister on Wall Street

What’s happening: After months of speculation, Tesla will join the S&P 500 index on Dec. 21, S&P Dow Jones Indices announced Monday. The company became eligible earlier this year after booking four consecutive profitable quarters. It’s now been in the black for five consecutive quarters, a first in its 17-year history.
Tesla (TSLA) shares are soaring on the news. The company’s stock, which has jumped nearly 388% this year, is up another 12.5% in premarket trading.

Tesla’s meteoric stock rise has drawn skepticism from some investors, who have worried that its hefty valuation doesn’t reflect the huge challenges it still faces. A struggling Toyota still expects to sell 9.4 million vehicles in its current fiscal year, while Tesla is targeting 500,000 deliveries.

Wall Street has also at times been reluctant to embrace Tesla CEO Elon Musk, whose unfiltered use of Twitter led to a dust-up with the US Securities and Exchange Commission.

But Tesla’s addition to the S&P 500 is a clear marker of just how far the company has come.

“Taking a step back, this is a major feather in the cap for the Tesla bull,” Wedbush Securities analyst Dan Ives said in a note to clients.

Last quarter, buoyed by strong demand for the more affordable Model 3 and the early success of Tesla’s Gigafactory in Shanghai, the company booked record profits and delivered more cars than ever before. Ives said this made it impossible for S&P Dow Jones Indices to keep Tesla out of the benchmark index much longer.

What happens next: Shares may be added to the index in two separate tranches in order to minimize disruption, per S&P Dow Jones Indices. The company had a market valuation of nearly $387 billion as of Monday’s close.

Once it joins the S&P 500, the company will attract large groups of new investors, according to Nick Hyett, senior equity analyst at Hargreaves Lansdown.

Previously, Tesla’s investor base largely consisted of active fund managers who bought into the company’s mission, Hyett told me. Now, passive fund managers in charge of portfolios that mirror the S&P 500 won’t have much choice but to get in on the action.

“Most passive funds [that track the index] will be essentially compelled to buy the stock,” Hyett said. Otherwise, they’ll have to answer to inquiring clients.

Vaccine frenzy sends stocks to record highs

Excitement about Covid-19 vaccines that could help facilitate a return to normal life has sent stocks rocketing to all-time highs.

The latest: The Dow and S&P 500 closed at records levels on Monday after Moderna said its experimental coronavirus vaccine is highly effective. Pfizer made a similar announcement about its vaccine candidate last week.

The Dow is now just 50 points shy of 30,000 points, a psychologically significant level for market bulls.

Driving the rally: Moderna’s vaccine has a significant advantage over the one from Pfizer when it comes to distribution.

Pfizer’s vaccine has to be kept at minus 75 degrees Celsius. No other vaccine in the United States needs to stay that cold, and doctors’ offices and pharmacies don’t have freezers that go that low. But Moderna’s vaccine can be kept at just minus 20 degrees Celsius. The company also said it can be kept for 30 days in the refrigerator. Pfizer’s vaccine can last only five days in the fridge.

“Last week’s Pfizer news was great, but today’s Moderna vaccine news is even better,” said Ryan Detrick, chief market strategist for LPL Financial. “Being able to store the vaccine in a standard fridge for up to a month makes transportation and usability so much easier.”

Investor insight: Moderna (MRNA) shares leaped 9.6% on Monday. They’re up more than 400% this year.
Also bullish: Warren Buffett. His conglomerate, Berkshire Hathaway, bought new shares in pharma companies AbbVie (ABBV), Bristol-Myers Squibb (BMY), Merck (MKGAF) and Pfizer (PFE) during the third quarter, the company disclosed Monday.

How Airbnb turned a profit last quarter

Despite a pandemic that’s dealt a big blow to its business, Airbnb managed to make money last quarter.

The startup, which unveiled its paperwork to go public on Monday, revealed that it turned a profit of $219 million between July and September as customers used the platform to plan domestic trips, or took advantage of remote work to book longer-term stays in new locations.

“Domestic travel quickly rebounded on Airbnb around the world as millions of guests took trips closer to home,” the company said in its filing. “Stays of longer than a few days started increasing as work-from-home became work-from-any-home on Airbnb.”

The company still had a difficult start to 2020, reporting net losses of $916 million through June 30. The fourth quarter could also be difficult as another wave of infections takes hold in many of its key markets.

Despite the tough operating environment, Airbnb’s public offering is highly anticipated among investors. The company is one of the most valuable private startups in the world, at one point notching a valuation of $31 billion.

Up next

Home Depot (HD), Kohl’s (KSS) and Walmart (WMT) report results before US markets open.

Also today:

  • US retail sales data for October arrives at 8:30 a.m. ET. Industrial production data follows at 9:15 a.m. ET.
  • Representatives from OPEC and its allies meet to discuss whether to extend production cuts into next year as demand for crude stays soft.
Coming tomorrow: Retail earnings continue with Lowe’s (LOW), Target (TGT) and TJX (TJX).