Prediction: Tesla Stock Will Plunge to $100 if the S&P 500 Enters a Bear Market
Tesla's sky-high valuation sets the stage for a significant potential correction.
Overview
The S&P 500 (SNPINDEX: ^GSPC) stock market index last traded in bear territory during 2022 and 2023, when a stubbornly high inflation rate forced the U.S. Federal Reserve to aggressively hike interest rates. The index could find itself in a similar position in the near future, because soaring oil prices are stoking inflation once again, prompting the Fed to execute a rate hike at its recent September meeting.
The S&P 500 currently has a Schiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio of 41.2, its second highest valuation since the peak of the dot-com internet bubble in 2000. In my opinion, this increases the odds of a severe downturn if headwinds like higher interest rates negatively impact the economy and investor sentiment.
Details
Last time the S&P 500 entered bear territory, Tesla (NASDAQ: TSLA) stock plummeted by 75% from its peak to trade as low as $108. Because of the electric vehicle (EV) giant's shrinking earnings over the past couple of years, I predict it could experience an even sharper decline if the S&P enters another bear market. Read on.
Source
Originally published at www.fool.com.