By William Davis


Baby you can drive my car.

Last month, GM sold 256,007 cars and trucks in the U.S. while Ford moved some 234,895 vehicles off the lot, the two big Detroit jalopies representing more than 31% of total domestic auto sales. Palo Alto-based Tesla, meanwhile, pumped out a whopping 4,050 of its electric lizzies, or 0.3% of total U.S. sales, barely edging out Hudson, Studebaker, and Packard. This morning, the company formerly known as Tesla Motors became the largest U.S. auto maker by market value.

Yes I’m gonna be a star.

True enough, trading at $312 bucks early Monday, the 13-year old automaker’s market capitalization reached $51.01 billion, overtaking GM’s $50.89 billion. (Tesla Inc. blew past Ford’s underpowered $44.95 billion a week ago.) Fact Is, Tesla shares have been on roll for a while, rising more than 40% just this year. Prospects are good for CEO Elon Musk, who reportedly controls a cool 28.9 million shares of company stock.

Baby you can drive my car.

The outsized run-up in a company that’s unprofitable and deeply in debt likely reflects a growing belief that electric motors will eventually replace internal-combustion engines as the primary power source for automobiles. More than that, Tesla’s market valuation is good evidence that investors are willing to pay for markets that don’t even exist yet. Think cars that drive themselves.

And maybe I’ll love you

Ironically enough, GM – whose best-selling vehicle today is a pickup truck — introduced the concept of self-driving at the 1930 World Fair. Tesla is a bet that Mr. Musk, who at 45 years old is the same age as Henry Ford when he released the Model T, might actually execute on that vision. While Tesla stock might be “absurdly overvalued,” to quote Mr. Musk, the point is “irrelevant.” It’s a race for the future of transportation, and the big money’s on Silicon Valley.

What the markets have been doing…

Stocks moved modestly higher over the two-week period, with larger-cap issues trading slightly better than small-caps. The surprise launch of missile attacks against Syria gave an unsurprising boost to defense stocks as well as safe-haven assets, with gold prices reaching a five-month high. Notable among all market events was electric carmaker Tesla’s capture of the spot of top U.S. automaker in terms of market capitalization after March sales declines led to sharp pullbacks in the shares of GM and Ford.

Last Wednesday saw the biggest market moves, with stocks initially rallying on a strong reading on March private payrolls growth from payroll processing firm ADP. The enthusiasm over job growth was short-lived, however, when the Labor Department’s official payrolls report came in well below expectations. Friday’s report showed only 98,000 new jobs added in March, the worst showing since last May.


INDEX Friday’s Close Two-Week Point Change Year-to-Date Change
DJIA 20656.10 +59.38 +4.52%
S&P 500 2355.54 +11.56 +5.21%
NASDAQ 5877.81 +49.07 +9.19%


The payrolls miss had a larger impact on the bond market, with the yield on the 10-year Treasury note touching its lowest level since last November. Limited new issuance helped provide support for the investment-grade space, and credit spreads remained in a fairly tight range. High yields easily dealt with manageable new issuance, though weakness in the automotive sector weighed on several issues. On the tax-free side, the new issuance calendar picked up for the period but traders were still unable to keep up with demand.

FIXED INCOME Period YTD 12 Months Yield
U.S. Treasuries
0.8% -(1.9)% 2.4%
U.S. Investment Grade 0.0% 1.5% 2.7% 3.3%
U.S. High Yield -(0.3)% 3.0% 16.6% 5.8%
U.S. Municipals -(0.1)% 2.0% 0.0% 2.4%


What the pundits have been saying…

“The trend of more and more young people finding that they do not need a car will likely continue to weigh on demand.”

Goldman Sachs

What people have been saying…

“I have always strived to maintain the appropriate balance between transparency and confidentiality, but I regret that in this instance I crossed the line to confirming information that should have remained confidential.”

Federal Reserve Bank of Richmond President Jeffrey Lacker, who stepped down last week after revealing his involvement in a 2012 leak of confidential information that sparked a criminal investigation. The surprise move – the first time a top Fed policy maker has resigned as the result of such a probe – strikes a blow to the central bank’s credibility.

What the numbers are saying…

$8.5 billion

The latest valuation of the music-streaming service Spotify, which is preparing to go public this year.

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