Elon Musk has replied to claims that he’s the reason behind Tesla’s share price sharp decline this year – saying that soaring interest rates have sparked a broader market sell-off by making cash more attractive than stocks.
“In simple terms: as bank savings account interest rates, which are guaranteed, start to approach stock market returns, which are not guaranteed, people will increasingly move their money out of stocks into cash, thus causing stocks to drop,” the world’s second-richest man tweeted Tuesday.
The Federal Reserve has hiked interest rates from near-zero to around 4.5% this year in a bid to control inflation, which is surging to forty-year highs.
That means that cash held in savings accounts now offers higher yields to investors, who may already be cautious about snapping up stocks in a year when the benchmark S&P 500 index has dipped nearly 20%.
Rising interest rates also wreak havoc on growth stocks like Tesla because borrowing is more expensive, dashing the company’s future cash flows.