Tariffs, Tesla, and Short Squeezes: A Look Ahead

Trump Tariffs Narrower Than Expected

Tariff fears have been the proverbial pebble in the shoe for U.S. equity markets since late February, leading to a rapid 10% correction in the S&P 500 Index. Though then-candidate Donald Trump made clear he would impose reciprocal tariffs during his campaign for the White House, executives and investors on Wall Street have complained that the tariffs have changed too rapidly and have been too unpredictable, making it difficult for companies to plan ahead.

However, U.S. markets soared early Monday as investors cheered less widespread tariffs than first feared. Though the price swings have been wide recently, Monday’s market showed unusual power, with the S&P 500 Index registering its most robust Monday morning opening gap since October 2022.

Short Interest is Unusually High

This morning, ZeroHedge (@zerohedge) reported that U.S equities have their highest market-wide short interest since COVID-19. Monday’s robust price action means that many of these shorts are offsides on their positions, potentially adding fuel to the bull’s fire. In case you missed it, I recently wrote about how Back-to-Back 90% Advancing Days Offer a Glimmer of Hope in a Corrective Market.

Tesla Soars on Model Y Sales, LMT/SMCI Downgraded

Tesla (TSLA) has been all over the news recently due to protests, vandalism, and shrinking sales. Nevertheless, shares rallied late last week after an “all-hands” meeting where Elon Musk Reiterated How Tesla’s Long-Term Vision Remain Intact Despite Challenges. In addition, late Sunday, news reports broke that the refreshed Model Y SUV, the best-selling car for two years running, is sold out of inventory in 29 states. Meanwhile, reports also suggest that Tesla service centers are struggling to keep up with surging demand.

In other news, defense giant Lockheed Martin (LMT) was downgraded at Bank of America (BAC) after the company lost a massive fighter jet contract to its biggest competitor, Boeing (BA). The analyst said, “While it is our expectation that defense budgets will rise, we remain wary of Lockheed Martin’s recent quality of earnings, the loss of all 6^th Gen manned tactical aircraft programs and lack of company-specific catalysts in the near-term.” Meanwhile, Super Micro Computer (SMCI) largely shook off a Goldman Sachs (GS) downgrade – a bullish sign.

Looking Ahead: PCE & Tariff Day

On the macro front, there are two major events to watch for. First, the latest PCE index number (the Fed’s “preferred inflation gauge”), will come out on Friday morning at 8:30 am EST. Second, Trump’s tariffs will go into effect on April 2^nd.

Bottom Line

The market’s initial anxiety over broad tariffs gave way to optimism as the finalized measures proved less extensive. Looking ahead, investors are focused on economic data and the implementation of tariffs, which will shape market sentiment in the coming days.

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This article originally published on Zacks Investment Research (zacks.com).

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