(Bloomberg) – After a $360 billion loss, Tesla Inc. has just been replaced by legacy Berkshire Hathaway Inc. as the fifth largest company in the S&P 500 Index.
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Shares in the Elon Musk-led electric vehicle maker closed Tuesday at a market valuation of $604 billion, versus nearly $645 billion for Warren Buffett’s conglomerate, underscoring this year’s major economic upheaval as formerly high-flying tech stocks plummet again , while industrials outperform.
Tesla, which was a member of the $1 trillion capitalization club as recently as April this year, has succumbed to yet another drawdown since September. Thanks to a hawkish Federal Reserve sending growth stocks ever lower — and the backlash fueled by Musk’s leapfrog acquisition of social media giant Twitter Inc.
“Berkshire has branded itself as America’s foundation, a place to hide when uncertain about the future,” said Catherine Faddis, Grace Capital’s chief investment officer.
The US stock market is seeing the end of an era when high-priced tech companies with aggressive future growth plans could do no wrong. Rising interest rates are spurring investors to buy value companies that offer stable cash flows in the here and now, while the relative resilience of the industrial and consumption cycles is proving to be a boon for stable and stable companies.
The Dow Jones Industrial Average far outperforms both the benchmark S&P 500 index and the tech-heavy Nasdaq 100 index, while Tesla’s 46% drop this year compares to a mere 2% drop for Berkshire.
Meanwhile, the big four tech companies — Apple Inc., Microsoft Corp., Google parent Alphabet Inc., and Amazon.com Inc. — are all down at least 20% so far in 2022.
The story goes on
Faddis also notes that Berkshire is difficult to value in the current economic climate, given its holdings in growth companies like Apple and Microsoft, and value stocks like American Express. The conglomerate also holds positions in privately held companies involved in everything from insurance and railroads to electric utilities.
“This is a great example of how slowly and steadily the race is winning in the current environment,” said Arthur Hogan, chief market strategist at B. Riley Wealth. “Value has held back from growth for the better part of a decade, but the tide has certainly shifted this year and will likely continue into next year.”
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