“Friday.” Doesn’t that word have a glorious ring to it? Phil Rosen here, today writing to you from Los Angeles, California. But I won’t take long, since today we’re covering shorts.
Tesla shorts, that is.
Elon Musk’s EV-maker is the most shorted stock in the world, but this week, those betting against Mr. Musk lost big, and there’s likely more pain to come.
Let’s get started.
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1. Investors betting against Tesla are headed for “short squeeze hell,” according to research group S3 Partners. Those who bet against Tesla lost $1 billion on Thursday as the stock rallied after its second quarter earnings report.
Production records at Tesla’s Fremont and Shanghai factories in June led Musk to praise the company, saying it has “the potential for a record-breaking second half of the year.”
Musk’s optimism helped drive the stock gain, but it was also driven by short-seller covering, which happens when investors who have bet against a stock snap up shares in the open market to close their losing positions.
At the same time, Tesla remains the ninth most popular long position among hedge funds — which means they could help drive further momentum.
“These buy-to-covers and the potential for hedge funds to bulk up their positions in a high beta name with a positive price trend may help reverse Tesla’s year[-to-date] price weakness,” S3 Partners said.
Meanwhile, another interesting tidbit that emerged from the earnings call was that the automaker has dumped 75% of its bitcoin.
We don’t quite know what motivated the move, but it’s a safe bet to look at this year’s slumping asset prices (especially for tech and crypto) as well as frosty economic conditions — which may also be part of the reason why Musk is looking to nix the Twitter deal.
In other news:
2. US stock futures fall early Friday, as Snap’s downbeat second-quarter earnings rattles investors. Also, wheat prices dropped to pre-war levels after Ukraine and Russia agreed a deal to unblock shipments. Here are the latest market moves.
3. On the docket: Verizon Inc., American Express Co., and Twitter, all reporting.
4. These dividend stocks can provide extra income as inflation erodes purchasing power. That’s according to a fund manager who has performed better than 96% of his competitors this year. See his list of seven companies.
5. Retail investors have been scared away from the stock market after this year’s brutal decline. According to JPMorgan: “The younger cohorts’ deleveraging has advanced by so much that all the previous post pandemic increase has been unwound already.”
6. The chance of a US recession in the next 12 months is a “coin flip,” the Mortgage Bankers Association said Thursday. The comments followed the firm’s lower growth revision for the US economy. Aggressive Fed policy and soaring inflation have pushed the firm to expect a 50-50 shot of a full downturn.
7. In case you missed it: The European Central Bank hiked interest rates yesterday for the first time in 11 years. In a bid to cool searing inflation, policymakers authorized an outsized 50-basis-point hike. The central bank is staring down the onerous task of trying to balance out an increasingly delicate eurozone economy.
8. Tech-stock picker Alex Umansky ran the world’s best mutual fund for years. But like a lot of growth stock investors, he’s had to take some hard losses lately. He explained what he’s buying now to get back to the top after a deep downturn — and how his strategy has changed.
9. Hedge Fund chief Mark Spitznagel said we should expect inflation to be “elevated forever.” He called the Fed’s bluff on raising interest rates enough to tame high prices — and told Insider how he thinks investors should approach risk mitigation.
10. Shares of Snap tanked as much as 30% after hours on disappointing second-quarter earnings results. The tech company missed big on expectations, posting its weakest ever sales for the quarter, and announced it would slow down its hiring and rate of operating expense growth. Goldman Sachs almost halved its price target for the stock after the disheartening result.
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Curated by Phil Rosen in New York. (Feedback or tips? Email [email protected] or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.