Since TSLA's disastrous earnings last week, a lot of people have asked how the stock manages to be up in spite of it all. And *part* of the reason is probably that Musk managed to get away with promising to cut his involvement with DOGE back to 1-2 days per week and have this reported as "Musk stepping back from DOGE", as if the effects of taking a chainsaw to your own brand were linear with number of hours per week spent doing it.
But I think a lot of the reason TSLA managed to have a run of good trading days in spite of terrible earnings is that on those days, the S&P 500 was up, and TSLA seems to spend a lot of time trading like a leveraged S&P 500 ETF.
I had a vague, intuitive sense of this, but I wanted to put some numbers on it. There've been 68 trading day's since Trump's inauguration (not counting the currently ongoing trading day). On 26 of those days, TSLA and the S&P 500 were both down. On 22 of those days, TSLA and the S&P 500 were both up. And there were 14 days where the S&P 500 was up while TSLA was down, but only 6 days where TSLA was up while the S&P 500 was down.
So the first thing to notice here is there's a bit of an asymmetry—on days when the S&P 500 was up, TSLA was up a little more than 60% of the time, whereas on days when the S&P 500 was down, TSLA was down more than 80% of the time.
The other thing is the magnitude of the swings. On days both TSLA and the S&P 500 were up, TSLA was up more in all but two cases. But on days when TSLA and the S&P 500 were both down, TSLA was down more in *every single case.* A linear regression of TSLA's price movements and the S&P 500's gives you a slope of about 2.14, meaning that on average (and I must emphasize this is an average), if the S&P moves by 1%, TSLA can be expected to move by more than 2%.
What's going on here? Well, first of all, TSLA should have very little ability to push around the S&P 500 by itself. It may be a "megacap" fund, but its weight in the S&P 500 is less than 2%, and even AAPL is less than 7%. On the other hand, S&P 500 index funds probably push around TSLA a lot—inflows and outflows into index funds, whether traditional mutual funds or ETFs, result in buying and selling of the components, affecting their price. That's how index funds are *supposed* to work.
The real question is why the changes are consistently amplified. Part of the story is probably that TSLA has a high P/E ratio, and companies with high P/E ratios are just in general more sensitive to market trends (something you can see if you compare the implied volatility on growth ETFs to the implied volatility on value ETFs). I do wonder if there's an additional factor, that TSLA has been in the news a lot, contributing to its volatility, which then becomes a self-fulfilling prophecy because volatility attracts gamblers and because quants build the observed volatility into their models.
An important upshot of this: even though I am not kidding when I say I [expect SPY to go to 420](https://www.reddit.com/r/wallstreetbets/comments/1ji8bie/spy_to_420/), I've never bought SPY puts, because I expect that *real* pain from the China tariffs hits in a few weeks, TSLA will crash even harder than the broad market. There are probably other stocks you could make this play with, though I don't have a specific one I really like. (Notably, I recently opened a short position on PLTR, then thought better of it and closed the position at a small loss after deciding their bull case was significantly less implausible than TSLA's.)
https://preview.redd.it/93e1kefdmzxe1.png?width=2156&format=png&auto=webp&s=5b2f8657743b728b226f0936f83fb6fa1f63b1ab