This isn’t about the short-term greed stock markets are so often accused of, our columnist writes
From the start of February to Monday’s close, Tesla was down almost 30% and Exxon Mobil up more than 30%, a stunning reversal of the pattern since the start of last year.
It would be easy to conclude that oil is back in fashion and electric cars are suddenly passé. But the first is only partly true and the second clearly false. In fact the moves reveal two bigger trends: the stimulus-driven economy and its effect on bond yields.
Tesla is a bet on the long term and Exxon is a bet on the short term. Last year, investors were convinced to look to the long run by a combination of awful short-run prospects and the Federal Reserve’s crushing of interest rates and bond yields. Since November, investors have increasingly focused on short-run profits as both trends reverse, although on Tuesday the sensitivity to Treasurys showed up in the other direction as a sharp drop in yields helped Tesla stock leap 20%.
Cyclical stocks, those most sensitive to short-run economic growth, have been doing well since Covid-19 vaccines raised hopes of economic reopening. The stimulus trade accelerated in February as it became clear that President Biden’s$1.9 trillion packagewould pass. Cyclical stocks such as airlines and oil companies, commodities such as oil and copper, and bond yields all soared.
Exxon is what a winner looks like in this new world of stimulus-driven demand.Oil is the most sensitive commodityto global consumption, and everywhere is heading for reopening this year. As demand picks up, so does the price.