DeGroote MarketWatch

DeGroote Marketwatch is a student-generated weekly report on the financial markets.

Trader in Residence has concluded for the semester.

Week of April 16, 2021

Written by Sid Mohapatra

Risk on market sentiment fueled by positive economic news pushed the US and Canadian equities to new highs last week. This strong performance saw the Dow Jones Industrial Average cross 43,000 for the very first time reflecting higher levels of consumer spending, pick-up in inflation expectations and a sharp rise in earnings reflecting a fast-tracked economic recovery. The markets continue to bask in the sunshine of rising levels of consumer confidence and robust corporate earnings will be drivers of the rally going forward. However, inflation expectations will pose a challenge to this rally if they start accelerating and remain persistent.  

The TSX closed at 19,351 up 0.60% for the week and racked up a healthy 11% YTD return. Similar to its Canadian counterpart, the S&P 500 appreciated as much as 11.40% on a YTD basis and closed at 4,185 increasing 1.40% this week. In bond land, the US 10 and 30 years closed at 1.57% and 2.26% respectively. The pace of sell-off in rates has reduced but still, the overhang of heightened volatility on account of inflation expectations remains to be a theme.

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Story of Interest

Written by Yiming Wang 

The Rise of the Electric Vehicle Industry

  • Background of the electric vehicle industry

Nowadays, the rapid growth of the electric vehicle industry has become an inevitable trend all over the world. In 2017, the sales volume of Plug-in Electric Vehicle is only 17,763 in the U.S. However, the number has been through a more than 18 times growth to 326,644 in 2019. In 2020, one single company, Tesla, will achieve 500,000 electric vehicle deliveries by the end of the year. With the progress of battery technology and the breakthrough in autopilot development, the electric car is more and more efficient and convenient than before. In this trend, several new companies are standing out, who deliveries superior products and redefine the value of the electric vehicle.

  • The outlook of the industry

Although the market share that electric vehicle has taken is still limited, the potential growth is huge. The transition from reliance on internal combustion engines to battery electric vehicles is essential for cutting greenhouse gas emissions and avoid the irreversible impacts of climate change. Achieving net-zero greenhouse gas emissions by 2050 has become the consensus between different governments. In the U.S, the 100% EV sales policy for 2035 or earlier has been throughout the Democratic primaries and got Joe Biden’s favour. In the EU, it is planned that the production of electric vehicles will exceed 4 million by the carmakers. In China, the government has planned that the market share of the new energy car should take 25% by 2025. Besides, the charging infrastructure is another focus amongst different countries. With the high accessible charging station and the development of fast charger technology, the advantages of ICE cars are gradually disappearing.

  • Investment opportunities

According to the previous market performance, the market has shown great enthusiasm for the electric vehicle stock. In October 2019, since the Tesla Shanghai Gigafactory has fully started assemblies, the stock price popped 30.7% in October and almost doubled by the end of 2019. With the great sales in 2020, the stock price skyrocketed from $350.5 (before 1 to 5 split) to $607.8 (November 2020), which is an 8.67 times increase. On Nov. 16, 2020, S&P Global announced that Tesla will join the S&P 500 effective before trading on Monday, Dec.21 as the 6th largest company in the U.S. Similarly, the BYD company, which is invested by Berkshire Hathaway, has achieved great success on their electric vehicle products. In Sept 2008, Buffett bet $230 million on BYD and own 25% of the company. Up to the end of Nov 2020, this investment has created around 30 times floating return. In the meanwhile, there are serval days that another Chinese, NIO, had the largest trading volume amongst all the other stock in the U.S. market. At the same time, NIO’s market value exceeded the market value of Audi and chasing for BMW. Many other EV companies showed extraordinary performance in the stock market. Many investors worry that these company’s sales and margin rates cannot support the exorbitant stock price and may become a dangerous investing bubble. However, three company has caught the attention of a great number of U.S investor.

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World Market Performance

Index Friday’s Close Week’s Change % Change YTD
DJIA 34,195.26 1.41% 13.16%
S&P 500 4,185.67 1.35% 13.10%
Nasdaq Composite 14,052.34 1.05% 10.66%
S&P MidCap 400 2,720.77 1.55% 19.90%
Russell 2000 2,262.86 1.29% 16.28%

 

Source: Refinitiv  

Market at a Glance *

* Click image to see full size version

Economic Calendar

Date   Release Actual Forecast Prior
Monday
Tuesday
Wednesday CAD Core CPI (MoM) (Mar) 0.3%
CAD BOC Interest Rate Decision 0.25% 0.25%
Thursday USD Initial Jobless Claims  617K 576K
USD Existing Home Sales (Mar) 6.19M 6.22M
Friday USD New Home Sales (Mar)  886K 775K

 

DeGroote MarketWatch is a weekly financial newsletter prepared primarily by students. It is designed to inform and educate the community. It is an educational tool. The DeGroote School of Business is not responsible for the consequences of actions taken based on DeGroote MarketWatch.
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