The chairman of the Securities and Exchange Commission, Jay Clayton, said Thursday that he is concerned that individual investors are rolling out money for risky short-term trades and causing the price of certain stocks to skyrocket.
Clayton’s comments came in response to a question from CNBC’s Andrew Ross Sorkin, who asked the regulator if the mind-blowing protests in actions, including Tesla, are cause for alarm.
“Here at the SEC, when we think of that investor, we think of someone who is investing long-term: investing over time, doing it monthly,” Clayton said. “What we are seeing are significant inputs from retail investors, and they have the characteristics of short-term inputs. And is that worrying me? Sure.”
“Because that is more to trade than to invest,” he continued. “Short-term trading is much more risky than long-term investment, so I am concerned.”
Although the SEC chief did not mention Tesla by name, the meteoric rise in the electric car maker’s equity in the past year has left analysts and investors cautious that the price reflects more emotion than business fundamentals.
Tesla, which posted its fourth consecutive quarter of earnings on Wednesday, is now worth more than Ford and General Motors combined, while delivering just a fraction of the volume of cars.
Elon Musk’s automaker is now worth around $ 300 billion, the result of a 512% rise in its stock price in the past 12 months.
Clayton added that the SEC has issued a guide for brokers and investment advisers on how to adequately warn individuals of the risks they face in allocating capital on select stocks.
“I hope people are paying attention to that,” he said.
While some analysts have argued that Tesla’s revaluation may reflect a long-term belief that the company will lead a broader shift nationwide to electric cars, others have denounced the increase as disconnected from reality.
JMP Securities, for example, downgraded the value of Tesla on Tuesday before earnings, saying: “We cannot reach a reasonable basis to argue that the stock should be priced above current levels, even taking into account our fundamental perspective.” .
Widely followed Morgan Stanley auto analyst Adam Jonas noted last week that “the power of hope” is taking an increasingly important role in Tesla’s rise.
Tesla shares rose 4.2% in premarket trading on Thursday morning as investors applauded the better-than-expected financial results they released on Wednesday night.
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