Why Tesla Stock Fell Sharply on Tuesday

What happened

Shares of Tesla  took a hit on Tuesday. The electric car maker slid by as much as 5.2%, and ended the trading day down by 4.4%.

That decline was likely primarily due to a broad pullback in the prices of many growth stocks toward the end of the session.

So what

The S&P 500 market index retreated from a gain during the middle of the trading day to end it down by 0.2%. Lots of growth stocks, however, fell by several percentage points or more.

The bearish trend in the market during the last few hours of trading reflected caution on Wall Street ahead of a news conference Fed Chairman Jerome Powell will hold Wednesday. Some investors may be concerned about how his remarks could impact the market.

Tesla has been an especially volatile stock this year, rising to a price just above $900 in January and then falling to below $550 in early March. The price has recovered quite a bit in the past couple of weeks, but Tuesday’s decline left the shares at about $677. Given that Tesla is a growth stock in its purest form, such wild volatility shouldn’t be considered unusual.

Now what

Meanwhile, Tesla management says it expects vehicle sales to soar by more than 50% in 2021 compared to 2020, when it delivered about 500,000. Analysts have big expectations, too. On average, they’re forecasting the company’s fiscal 2021 revenue will increase by 53%.

The problem, of course, is that high expectations are already baked into Tesla’s stock. While it’s always possible that the automaker will exceed even the most bullish analysts’ views, investors should prepare for more volatility, which is quite normal for stocks that have a lot of anticipated growth priced in.