Why Did Tesla Stock (TSLA) Jump Today?

Key Points

• Investors are expecting unemployment data to force the Fed to cut interest rates next week, despite hotter-than-expected inflation.

• The Federal Reserve faces a tough balancing act with inflation still nearly a percentage point above its 2% target while jobless claims have hit their highest level since October 2021.

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Shares of Tesla (NASDAQ: TSLA) climbed higher on Thursday, finishing the day up 6%. The spike came as the S&P 500 gained 0.8% and the Nasdaq Composite rose 0.7%.

The latest consumer price index (CPI) data was released this morning alongside the latest unemployment figures. The results made investors more confident that rate cuts are coming, lifting stocks across the market.

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The Fed now has to make a decision

The Federal Reserve today received the last of the primary data it will use to decide whether to cut rates (and by how much) at its meeting next week. The CPI report for August was hotter than expected and is now close to a whole percentage point higher than the Fed's target of 2%. Under normal circumstances, that would likely mean the Fed would hold rates steady or consider increasing them.

But the Fed has a dual mandate. Along with keeping inflation low, it must also keep Americans working. These are often opposing goals: Rate cuts boost employment, but spur inflation; rate hikes curb inflation, but cool economic activity and, with it, the job market.

Image source: Getty Images.

The CPI numbers come as the job market is showing signs of weakness. Today's unemployment report makes things look even worse. The Labor Department reported that last week, the number of Americans applying for unemployment for the first time was the highest it's been since October 2021. This number was significantly higher than expected.

Tesla stock is pricey

The jobless claims are likely to win out, with the market very confident that rate cuts are coming. This tends to boost markets, particularly for riskier stocks. With a forward price-to-earnings ratio (P/E) of more than 136, Tesla stock is extremely pricey. That makes it risky, especially as its sales plummet in almost every global market. This is not a stock I would own at this point, not at this price.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.