P R E M I U M
Monday, July 31

The Outlook for the Rest of 2023


While we don't have a podcast this week, we still wanted to give you a summary post of last week's events and what we're watching this week.

We're at a pivotal moment for the market and there is a lot happening in this economy

So, lets dive in and get a better sense of what's going on: 

 

Here are the 4 key things we're watching:

  • How the GDP figures add to an emerging bull narrative

  • Why Meta's earnings call was so significant

  • What potential pitfalls we could still see in the back half of 2023

  • Where we're adjusting our strategy as the bull narrative matures

 

Let's get into it 👇


Overview:

What a wild moment in the market. There are a lot of gigantic details competing for attention as we prepare for a week that will help investors understand if this rally will continue or not.

Therefore, we need to understand if we can really increase productivity while keeping inflation and job growth at safe levels. Let's find out 👇

 

2023 In Review:

This feels like all of 2021, just on a very compressed timeline. Let us explain.

After an explosion of growth stocks in the first half of the year, value plays are starting to take the spotlight once again. 

With the market waiting on more information about whether this AI boom can carry the year of efficiency to new heights, investor dollars are flooding into companies providing actual value instead of growth opportunities. 

Chief amongst these winners is the airline industry, where another shift is becoming more and more pronounced. 

In addition to demand surging back up, as the broader market has basically started treating the COVID-19 pandemic like it is already over, the biggest costs facing airlines have also plummeted. 

That hasn't stopped the likes of Delta and United from streamlining operations enough to capture as much demand as possible as we roar through this travel boom. 

That's what we're going to keep watching as we make it through the rest of 2023. At least temporarily, the market is massively switching to appreciating experiences over goods. Service-based companies are seeing a broad recovery in revenue while retailers continue to struggle through rising inflation. 

Some value plays like utilities are also making a bit of a comeback, but we're going to stick with service providers for the time being. 

So, looking to the week ahead, we're a little nervous for some of the bigger names in big tech to report their earnings.

The likes of Microsoft and Meta need really huge growth to keep up with the expectations set by their AI ambitions. Meta seems the best poised for growth so long as their algorithms are driving more engagement on Instagram (though we probably won't get 'real' Threads data for another quarter).

Microsoft also needs to show us that their security ambitions are real in order for us to keep buying them as the new kings of cloud before they tell us anything else about AI.

Long story short, now that the soft landing has been priced in, we need to see whether or not these companies can actually grow in a period of higher-for-longer interest rates.

 

Recapping Last Week:

The two big highlights coming out of last week were strong tech earnings and a brilliant GDP print. This pushed the market higher despite the fact that the Fed surprised traders by increasing interest rates higher.

Now that Jerome Powell's push towards a soft landing appears to be actually working, the market is pricing in interest rate hikes like they're nothing and just watching inflation instead.

There's only one more interest rate hike expected for the rest of this year though, so every FOMC meeting for the rest of the year should at least be exciting to watch. 

On the tech side, Microsoft showed us the danger of promising too much too early in the AI game. MSFT hit a brilliant start to the AI wars, but their AI growth is expected to be rather muted to the second half of the year. Those expectations, combined with weaker Azure growth, cut 2% out of Microsoft's valuation to start the week. It's a speed bump more than anything, so long as Microsoft can bring the hype back, especially with their new focus on security. 

Meanwhile, Alphabet's patience paid off as they have become (for now) the undisputed leader in the AI services race. Google Cloud growth is off the charts and clients are creating a lot of value with Alphabet's various AI models. The potential growth is exciting and we're eagerly waiting to see it ramp up. 

Meanwhile, GDP came back way higher than expected. Instead of the economy slowly falling into a recession over the next 2 years, we're seeing the winners in this economy carry the losers enough to push us into an environment where the rate of GDP growth is increasing despite how tough interest rates are making everything. We're slowing down inflation and growing the economy (kind of).

What to Watch This Week:


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