Flagship Pod 92: Moby's Outlook for 2024

11/20/2023
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Now let's get into what we reviewed.

Here are the 4 key things we went over:

  • When the Fed may finally cut rates

  • How the sports betting market has evolved

  • Where this bull rally can go now that consumer spending has cooled off

  • Why the EV market is so tumultuous right now

And if you're too busy to listen to the entire recording, below we included a compact summary of what went down.

To get all the juicy details, just listen to the entire recording. And now, onto the summary👇


Overview:

With the market modulating a bit ahead of Thanksgiving, we used this episode to check in on the bull and bear narratives surrounding this recent rally. 

In short, the market ended higher despite demand fears coming from various retailer earnings reports. While the market is concerned about consumer spending causing a massive slowdown, there's been enough decent earnings growth to keep bulls in charge of the price action. 

We're deep in the 'moment of truth' for the Federal Reserve as higher rates make their final push to kill inflation once and for all. Consumer spending is in focus as American spenders are finally, truly running out of excess savings and the really bad bite of higher interest rates won't hit credit card balances until the beginning of next year. 

But if the broader consumer base can thread the needle and keep growth alive while spending a little less, then the economy can limp forward toward a moment where wages can catch up to higher prices while supply issues cool off enough to not bring inflation roaring back. 

So, Q4 is a pivotal moment where the market is watching consumer spending closely. Despite a bevvy of qualitative reports about weaker outlook, if spending survives here, then we can hit the Fed's soft landing. If we see spending fall too far, then investors may pull back and bring the bear narrative roaring back to dominance. 

The moment of truth is hard to parse, and volatility is still going to be a big part of the next few months, so let's check out the major narratives still driving the market here.👇

The Sports Betting Market is Bigger Than Anyone Expected:

One very underreported narrative last week was the barn burner of an investor day DraftKings put on. We've been bullish on DraftKings for years now, and now they've demonstrated how strong their market is.  

This latest investor day also came in the same week that ESPN Bet launched to honestly very muted fanfare. With massive, well-funded competitors to DKNG, the sports betting market is getting heavily developed a lot more consumer interest than previously anticipated. Basically, DKNG now projects the current online sports betting and iGaming market can expand 54% next year in just the states where gambling is already legal. The TAM in developed markets now looks like it can hit $20 billion by the end of this year.

With DraftKings basically the leader in both the OSB and iGaming space, this is rapidly turning into their market to lose. DraftKings has always thrived thanks to a stronger product and higher-margin strategy. With their CAC collapsing, DraftKings has already passed the new price target we set in September.

We'll be releasing an update this week to reflect the new reality in this space. 

The EV Market is Still in Good Shape

After Tesla, Ford, and GM brought market sentiment down a peg in the last few months, Rivian released numbers that reflect a stronger EV space than the market has been pricing in.  

Basically, Tesla is getting hamstrung by their own aggressiveness while Ford and GM are dealing with fallout from the UAW strike. Rivian, meanwhile, is maintaining efficient production and expanding its business in a way that won't make them bankrupt. 

While Rivian isn't going to overtake Tesla anytime soon, they are now poised to be the standout in the American EV market while investors wait for Tesla to either cut costs or demonstrate enough growth to justify their massive R&D expenses. Rivian also has received an expanded mandate to produce RCV electric delivery vans for more clients than just Amazon, so RIVN basically just needs to keep executing as they are perfectly capable of finding enough demand for their vehicles.

Will This Rally Last? 

Ultimately, this latest rally stems entirely from investor confidence that the Fed has largely defeated inflation. Further rate hikes look to be basically off the table, but now investors are concerned that Jerome Powell pushed too hard, too late, and that a recession is inevitable. 

The main blemish on Q3 earnings season has been advertising players like Meta, Snap, and The Trade Desk announcing concern that Q4 demand is going to be more muted than folks expect. 

At the same time, retailers like Walmart have also released slightly reduced guidance as well as subjective reports about muted consumer spending as well as signs that consumers are simply out of gas. 

But, until we get actual Q4 sales numbers, it's going to be hard to gauge the strength of consumers. The Street is also closely watching credit delinquency rates as higher interest rates are going to really start squeezing credit card balances in 2024. 

For now, it's too soon to say if we will really hit the Fed's soft landing in 2024 or get mired in a mild recession. This rally suggests that AI productivity advancements can be enough to offset slower consumer spending, but it will be hard to gauge until we get just a little more data.

Wrapping this up: 

In the end, this week will be pivotal as we get one last massive earnings report before the Thanksgiving break.

Nvidia reports Tuesday night, and their data will be absolutely essential to keeping this rally alive. The Street needs to see Nvidia exceed expectations here, which is going to be harder and harder to do as the AI market continues to develop. Nvidia has the power to either prove or cancel this bull run right before we're setting the table at our Thanksgiving dinner.

Hopefully, Nvidia earnings will give all you armchair analysts out there something to talk about besides the ongoing drama unfolding at OpenAI. 

We'll keep you posted as the market develops.