Wednesday, April 3, 2024

About This Bond Selloff

  • Hey, a 1 percent day!
  • Are EVs OK?
  • On the nuclear option.
Senior Editor, StockPick Daily
MARKETS

Not-So-Super Price Action

An interesting market gets testy.

The yield on the 10-year US Treasury note surged to four-month highs early on Tuesday, pushing up above 4.4 percent a couple of times in the morning.
The 10-year reached 4.363 percent, levels it hasn’t seen since November 27.
Recent economic data have investors, traders, and speculators pricing out their dovish Federal Reserve forecasts and selling bonds.
We know it’s not happening in May, but even the odds for a rate cut in June dipped below 50 percent for a moment yesterday.
Stocks gapped down at the open and stayed down into the close, pulling up off the lows but nevertheless extending an atypical start to April.
At its low the Dow Jones Industrial Average had shed 515.15 points, which still seems like a lot but is just 1.3 percent. But we hadn’t had a day like that since March 5.

The yield on the 10-year US Treasury note reached a five-month high on Tuesday.
The market is riding the uneasy tension between “resilient growth” and “persistent inflation,” at the same time leadership is shifting from services to stuff.
Commodities are up with yields, and more and more people who operate in those markets are once again using “super cycle” to describe what’s happening.
As Mish Schneider noted in her Weekly Market Outlook, this is an interesting market, with pockets doing well and pockets starting to look toppy.
And we have an inflation narrative that still hasn't fully resolved.
So, does Tuesday’s action reflect an equity market that’s spooked, or one that’s just digesting incoming data?
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April 3, 2024
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DEEP DIVE

Demolition Derby

EV makers are crashing into each other.

Tesla $TSLA said it sold 386,810 of its electric vehicles during the first quarter, an 8.5 percent year-over-year decline and well below Wall Street expectations.
It’s the first annual decline since the pre-pandemic days.
The good news is TSLA’s Warren Buffett-backed China-based competitor BYD sold just 300,114 EVs in the January-to-March period. BYD’s sales were down 43 percent quarter over quarter but were up 13 percent year over year.
So TSLA is No. 1 again after surrendering the title for the fourth quarter.
But TSLA was still down nearly 5 percent during Tuesday’s regular trading session. And it’s the biggest loser among S&P 500 stocks so far this year, with a decline of more than 30 percent.

Global electric vehicle sales by year since 2013, as compiled by Car and Driver.
Now seems like a good time to tap the brakes and take a look around at the EV landscape.
As Jamie Kitman of Car and Driver points out, global EV sales hit a record last year and reached all-time highs in multiple markets. Sales in the US were up almost 50 percent to a record 1.1 million, and BYD sold 1.6 million EVs.
The basic problem is one of expectations management, and that’s not really one of TSLA’s and/or BYD’s making. We’re looking at you, Ford $F and General Motors $GM.
“Another factor behind grand EV pronouncements is the jealousy over Tesla's market cap (particularly when top executives' compensation is tied to share price),” Kitman writes.
“Tesla's high valuation must mean EVs are the path to riches, right? And if EV promises appeal to Wall Street, environmentalist wings of government, and the public, so much the better.”
As Kitman concludes, “It's easier to say you're going all in on EVs than it is to design, build, and market battery- powered vehicles people want to buy.”
ENERGY

Going Nuclear

Here’s why we need uranium.

Here’s why we need uranium.There was a lot of red on the screens on Tuesday. But energy names stayed green. And those related to uranium were at the front of the charge.
This is clearly one of the most captivating of the elements, literally world-changing and potentially world-ending. They make movies about its manipulation.
They use plutonium to make nuclear bombs now. But uranium is the key element in next-generation reactors proliferating around the world.
We’re in the emergent stage of a new nuclear renaissance, driven by demand for power for cutting-edge technologies such as AI computing as well as centuries-old processes such as hydrocarbon extraction.
It’s also cleaner and safer than ever, so much so that the US and dozens of other countries have committed to tripling global nuclear capacity as a means to counter climate change.
And that’s driving a surge in demand for U.
Stocks of independent power producers with nuclear assets, including Constellation Energy Group $CEG, Talen Energy $TLNE, and Vistra $VST, have surged along with Nvidia $NVDA.

Periodic table of the elements, featuring Uranium, a key input in the production of nuclear power.
Meanwhile, on Monday, Bloomberg reported that  US shale oil producers are considering the use of small nuclear reactors to power drilling operations in the Permian Basin in Texas.
They want to cut emissions, and they want reliable sources of power.
Diamondback Energy, the biggest producer in the region, has signed a nonbinding letter of intent with Oklo to deploy small reactors for some of its future power needs. Oklo is developing an advanced fission reactor, and CEO Jacob DeWitte said he’s talking with other producers as well.
As Oklo’s DeWitte said to Bloomberg, “These fossil fuels are going to be produced. Do we want to burn carbon to produce them, or do we want to not burn carbon to produce them? There’s a pretty obvious answer.”
Then, on Tuesday, Canada-based X-Energy Reactor announced a partnership with power producer TransAlta to study the use of X-energy’s Xe-100 advanced small modular nuclear reactor at a fossil fuel power plant site.
The initial deployment is supported by the US Department of Energy’s Advanced Reactor Demonstration Program at Dow’s Seadrift, Texas, operations site along with a new commercial facility in Oak Ridge, Tennessee, to manufacture TRISO-X uranium-based fuel for next-generation reactors.
The project in Seadrift will be the first grid-scale advanced nuclear reactor deployed to serve an industrial site in North America.
The Global X Uranium ETF $URA was up 0.90 percent on Tuesday, while the North Shore Global Uranium Mining ETF $URNM added 1.34 percent.
Both funds hold a lot of Cameco Corp $CCJ, one of the biggest global nuclear fuel suppliers, and a lot of Sprott Physical Uranium Trust Fund, though URNM is more concentrated among its top 10 holdings.
The bottom line is there’s still time to consider your nuclear options.

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