The tariff-induced stock market rout is confirming what hedge fund Stanphyl Capital’s Mark Spiegel has been saying for some time: the market is way overvalued, and Trump’s tariffs are only going to make it worse.
Spiegel’s pessimism is finally paying off. While many hedge funds are awash in red ink, Stanphyl, which is famously short Tesla as well as the broader market, was up almost 30 percent during the first quarter, compared to a 4.3 percent loss for the S&P500. And that was before the tariffs kicked in.
“While the tariffs Trump announced this week were far worse than anyone —including I — expected, even a ‘better than expected’ universal 10 percent tariff would have been a major headwind for a stock market that was (and remains) priced-to-perfection while even pre-tariff inflation remains sticky and the economy has been slowing,” he told Institutional Investor in an email Thursday, before China retaliated with its own 34 percent tariff on Friday.
At the end of March, Spiegel told investors that the fund was short the S&P500 (via the SPY ETF), noting that S&P 500 stocks were selling for 23.5 times earnings. “And that’s before any of Trump’s margin-crushing tariffs kick in during Q2,” he said in a letter to investors on March 31 — days before the market began to tank as soon as Trump announced his worse-than-expected tariffs.
Spiegel said that traditional valuation metrics say the PE ratio should be “20 minus the current 2.8 percent rate of CPI inflation,” which would put a 17.2 multiple on them. “And remember, that 2.8 percent inflation rate is ‘pre-Trump-tariffs’ — and thus is likely going much higher, thereby further compressing PE multiples,” he said.
The hedge fund manager was one of the OG Tesla bears, and while that view has been painful over the years — forcing him to cover at times and restructure his short — resilience has paid off this year as Tesla shares have fallen 33 percent in 2025.
“We were on-and-off short Tesla this month, trying to avoid its irrational rallies while maintaining a very large sell-stop to get hugely short when it takes another leg down,” he said. “Tesla’s sales are collapsing.”
“Elon Musk continues to destroy the brand,” he added, predicting that “in early April the company will likely report its worst delivery quarter — Q1 2025—in years.”
Spiegel was right, if only a little understated. On April 2, Tesla reported a 13 percent year-over-year decline in vehicle deliveries for the first quarter of 2025, which was actually the steepest drop in its entire history.
“These collapsing sales are happening even before the upcoming tax bill kills the U.S. $7500 consumer credit and Trump’s tariff forces a price increase due to Tesla’s substantial use of parts from Mexico, Canada, and overseas,” added Spiegel.
Given the slump in sales, he predicts Tesla will be “lucky to earn $1.50 per share this year [with] a PE ratio of approximately 173. Yet auto companies comparable to Tesla sell for only around 4x to 6x earnings, which would make its stock worth less than $10 per share. No wonder Musk is trying to nonsensically claim that Tesla is ‘really a robot, robotaxi and AI company!’”
As he typically does in his monthly letters, Spiegel went on a long dissertation of the many inconsistencies in Musk’s claims about Tesla’s self-driving capabilities, which he noted was the subject of reported Department of Justice criminal investigations that he suspects Trump will abandon.
But despite the tariff selloff in the markets, Spiegel is realistic about the dangers of being short.
“Trading this market on the short side has been — and remains — extremely tricky, as stocks have been rallying sharply every time there’s a hint that the tariffs are just ‘a negotiating tactic’ and thus could soon be removed. I think that for this market to really break down, investors must realize that stocks are way too expensive even for some tariffs, and yet at least some tariffs are inevitable.”
