In case it was not obvious, Tesla () and SpaceX () hurt the overall stock market on Thursday. Despite strong sales, Tesla’s operating margins are collapsing, and the company now has negative cash flow as it ramps up to make the Optimus robot that is initially designed for factories. SpaceX had to delay the test launch of its Starship rocket due to weather and has declined approximately 50% from its highs. The bottom line is we are in the midst of a strong earnings announcement season, and the stock market has no patience for companies that are not announcing strong sales, earnings, surprises and guidance.
I am proud that our portfolios have been exhibiting relative strength, and we were especially resilient on Thursday when declined over 506 points, the declined 1.21%, and the dropped 2.15%, while an 80-stock portfolio I manage was up 0.25%.
Unfortunately, shipping through the Strait of Hormuz has ground to a halt, and Houthi militants attacked two Saudi Arabian tankers in the Red Sea. As a result, crude oil prices are rising and reigniting inflation fears. This is also causing Treasury bond yields to rise, so the bond vigilantes have reappeared.
Speaking of bond vigilantes, J.P. Morgan CEO Jamie Dimon on a podcast warned that a bond market reckoning is coming. Specifically, Dimon is apparently very worried about as the cumulative U.S. debt approaches $40 trillion. I should add that under Treasury Secretary Scott Bessent, the Treasury auctions and bid-to-call ratios are normal, so there is not a problem at this moment. Also, the “velocity of money,” which is how fast money changes hands, is accelerating, so that also helps to have healthy bidding at the Treasury auctions.