Stock Market Shows Cracks; Tesla, Facebook Move After Earnings

The stock market moved sharply lower on Wednesday, showing some cracks in the long bull market  that investors have enjoyed since last April. Controversy surrounding stocks with high short interest levels continued to dominate the attention of many individual investors, but weakness in some of the areas that had previously been strongest raised concerns. The Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 index (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) all suffered declines of more than 2%.

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Stock Market Shows Cracks; Tesla, Facebook Move After Earnings

Data source: Yahoo! Finance.

Investors have looked forward to today as a day of reckoning for the stock market, because major companies are announcing earnings after the bell on Wednesday. Both Tesla (NASDAQ: TSLA) and Facebook (NASDAQ: FB) made moves after their respective reports, even though their respective businesses still look strong.

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Tesla closes a strong year

Shares of Tesla were down 2% in the regular trading session, and they fell more than 3% in after-hours trading as of 4:40 p.m. EST. The electric-vehicle giant delivered its final look back at 2020, but even with extraordinary performance, shareholders didn’t seem to get everything they wanted to see from the report.

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Tesla’s numbers were consistent with the positive readings on deliveries that the automaker gave earlier in the month. Revenue jumped 46% in the fourth quarter from year-ago levels, with a tripling of regulatory credit revenue still adding only a small portion of the incremental bump to Tesla’s top line. Margin levels improved, and net income more than doubled to $903 million on an adjusted basis. Free cash flow climbed 84% to $1.87 billion despite a considerable ramp-up in capital expenditures to finance manufacturing capacity expansion.

Looking ahead, Tesla has ambitious plans for growth. The company expects to boost vehicle delivery volume at a roughly 50% annual pace over the next several years. Facilities in Austin and in Germany should start producing vehicles later this year, and Tesla continues to make progress toward full self-driving capabilities. The Tesla Semi could see its first delivery by year-end 2021 as well.

After such a massive share-price rise in 2020, however, it’s reasonable for the stock to give back some ground even with a strong report. Moreover, with less than perfect clarity on what’s next for the automaker, some are opting to take their profits while they’re still there to take.

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Facebook faces facts

Meanwhile, Facebook shares were close to unchanged as of 4:40 p.m. EST after having fallen 3.5% in the regular session. Investors had mixed views on the social media giant‘s fourth-quarter financial results.

Facebook’s fundamental numbers looked solid. Total revenue climbed 33% in the fourth quarter, capping a year in which top-line figures rose 22%. Net income soared 53% year over year to $11.2 billion for the quarter. Key metrics continued their steady rise, as daily active users weighed in at 1.84 billion and monthly active users hit 2.80 billion.

Yet Facebook was cautious in its outlook, as CFO David Wehner pointed to “significant uncertainty” in 2021 as a number of issues are affecting the business. The COVID-19 pandemic has created shifts that have been favorable to Facebook, but the social media company believes that a reversal of those trends once the pandemic is under control could lead to short-term headwinds. Meanwhile, Facebook expects that the next couple of quarters will feature much stronger results in comparison to pandemic-weakened performance in the same period in 2020, making comparisons look extremely attractive.

Keep your eyes open

Meanwhile, Apple (NASDAQ: AAPL) was down 1% after hours. The move came even after it reported record earnings powered by iPhone 12 sales.

Markets are extremely turbulent right now, and investors are on edge. That could lead to some great opportunities for those who are ready to take advantage of any short-term swoons in the market to grab top stocks at bargain prices.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dan Caplinger owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Facebook, and Tesla. The Motley Fool has a disclosure policy.

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