Stocks Struggle After Tesla Earnings, Economic Data

Red Tesla sign outside of Tesla dealership

(Image credit: Scott Olson/Getty Images)

Stocks opened lower Thursday as the latest batch of economic data elevated recession fears. Not helping matters was another rush of corporate earnings reports, with several notable stocks sinking in the wake of their results.

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The Labor Department this morning said that weekly jobless claims rose by 5,000 last week to 245,000, more than economists were anticipating. "Jobless claims continue their steady but slow rise," says Edward Moya, senior market strategist at currency data provider OANDA. "The labor market is softening but nowhere near levels that will alleviate wage pressures, which means inflationary pressures will remain strong."

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Adding to signs of a slowing economy, the Philadelphia Fed manufacturing index for April came in much lower than expected, while March existing home sales also missed the mark.

More on Tesla earnings

On the earnings front, results from Tesla (TSLA) stole the bulk of headlines today. "Tesla's first-quarter earnings per share took a big hit, tumbling 23% from the year-ago quarter to 73 cents, however, in spite of price cuts revenues leapt 24% year-over-year to $23.3 billion," says Anthony Denier, CEO of commission-free trading platform Webull. "Margins are important for growth stocks like Tesla, and cutting the prices affected the margins, as auto gross margins came in at 18.3% vs the 20.5% Wall Street expected." Still, Tesla is beating all other automakers in both EV deliveries and profitability, Denier adds.

While most analysts remain positive toward Tesla, David Trainer, CEO of Nashville-based investment research firm New Constructs, thinks the stock has farther to fall. "Tesla's latest earnings definitively show that it is not immune to competitive challenges and will likely see lower profitability in the future," Trainer says, adding that its valuation implies the opposite. "Even in an optimistic future cash flow scenario, shares could trade as low as $28." For reference, TSLA stock slid 9.8% today to close at $162.99.

AT&T (T) is another stock that got hit after earnings, sinking 10.4%. The telecommunications company reported first-quarter earnings and revenue beats, but free cash flow of $1 billion came in well below estimates for $3.2 billion.

As for the major indexes, the Nasdaq Composite shed 0.8% to 12,059, the S&P 500 fell 0.6% to 4,129, and the Dow Jones Industrial Average gave back 0.3% to 33,786.

The best stocks for economic uncertainty

If there's one key takeaway from earnings season so far, it's that consumer demand is weakening. This is according to Robert Schein, chief investment officer of financial services company Blanke Schein Wealth Management.

"Tesla and Netflix's results are signposts for what's to come, which is a cyclical decline in discretionary spending as consumers feel the squeeze," Schein says. "Tesla has been cutting prices for its cars and Netflix added fewer than expected subscribers."

This creates plenty of uncertainty for market participants going forward, particularly as they consider the Federal Reserve's future plans for interest rates and corporate earnings in an elevated interest-rate environment, the strategist adds. Investors should "stay vigilant," Schein notes, and focus on "sectors that can fare well in many different economic climates." These, he says, include the best energy stocks, consumer staples stocks and materials stocks.

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With over a decade of experience writing about the stock market, Karee Venema is the senior investing editor at Kiplinger.com. She joined the publication in April 2021 after 10 years of working as an investing writer and columnist at a local investment research firm. In her previous role, Karee focused primarily on options trading, as well as technical, fundamental and sentiment analysis.