NASDAQ Composite, S&P 500 Start the Year Lower as Apple, Tesla Shares Plunge Ahead of Fed Minutes

The major U.S. stock indexes started the new year under pressure after early session strength succumbed to sharply lower performances by Tesla and Apple. Both stocks were among the worst performers in the benchmark S&P 500 Index and the NASDAQ Composite Index.

While stock specific factors were responsible for the sell-offs in Tesla and Apple, the majority of the selling pressure was fueled by concerns about the Federal Reserve’s interest-rate hiking path ahead of Wednesday’s minutes from its December meeting.

On Tuesday, the Dow Jones Industrial Average settled at 33136.37, down 10.88 or -0.03%. The NASDAQ Composite Index closed at 10386.99, down 79.50 or -0.76% and the S&P 500 Index finished at 3824.14, down 15.36 or -0.40%.

Tesla Drops Amid Missed Estimates Due to Logistical Issues, Slowing Demand

Tesla Inc. shares closed down 12%, hitting their lowest level since August 2020 after the electric car maker said quarterly deliveries fell short of market estimates on Monday. Officials placed the blame on ongoing logistical issues and growing demand concerns.

Tesla delivered 405,278 vehicles in the fourth quarter ended Dec. 31, short of analysts’ estimates of 431, 117, according to Refinitiv. For all of 2022, the electric-vehicle maker’s deliveries rose by 40%, missing Musk’s 50% annual target.

The short-fall highlighted the logistics hurdles facing a company known for its end-of-quarter delivery rush, with the gap between production and deliveries widening to 34,000 vehicles as more cars got stuck in transit.

The company also announced it plans to run a reduced production schedule in January at its Shanghai plant, extending the lowered output it began in December in 2023, Reuters has reported.

“We believe Tesla is facing a significant demand problem … many investors underestimate the magnitude of the demand challenges Tesla is facing,” Bernstein analyst Toni Sacconaghi said.

Apple Sinks to Lowest Level Since June 2021

Apple Inc shares sank 3.7%, with the iPhone maker hitting its lowest level since June 2021, after a report from Nikkei Asia pointed to weaker demand. In addition, an analyst downgraded their rating of the stock due to production cuts in COVID-19 hit China.

According to Nikkei Asia, China’s tech supply chain is heading into the new year facing the twin challenges of slumping demand and staffing chaos caused by Beijing’s abrupt U-turn on COVID controls.

Meanwhile, “Apple has alerted us to lower orders for almost all product lines actually since the quarter ending December, partly because the demand is not that strong,” a manager at an Apple supplier told Nikkei Asia. “The supply chain in China is still trying to cope with the latest abrupt policy turns, which brought a shortage of laborers because of the sharp COVID surges.”

Short-Term Outlook

While Monday’s bearish price action was fueled by the weak performances in Tesla and Apple, on Wednesday, the focus will be centered on the Fed meeting minutes due to be released at 19:00.

In December, the Federal Open Market Committee (FOMC) raised overnight rates by 50 basis points. This was deemed a less-aggressive move following four consecutive 75 basis point increases.

Stock market investors are hoping the Fed minutes reveal the details of issues, debates and how much consensus there was among FOMC members. Traders will use this information to determine whether the hawkish stance is fading or likely to increase.

The minutes will also include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus. In other words, some portion of the market doesn’t believe the Fed will raise its benchmark rate as high as 5.00% – 5.50%

Given this slight, but important divergence, the minutes could shift the mood of stock investors to more bullish or more bearish.