Flagship Pod 83: Electric Summer

07/10/2023
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Now let's get into what we reviewed.

 

Here are the 4 key things we went over:

  • Why the markets were spooked last week

  • The 2 key things we're watching for the rest of 2023

  • How Threads was able to grow so quickly

  • Where all this sudden growth in the EV industry is coming from

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:

Q3 is off to a solid start with a shortened trading week last week. 

The EV market is primarily driving growth while the wider market stumbled on a stronger-than-expected job market.

While the market sold off on payrolls, that didn't do much to move our outlook (more on that later). We're still in a period of winners and losers, and the great part about that is the winners are starting to really separate themselves from the pack.

So, let's dive into the key trends you need to win this week as we push into Q3 with earnings and a big CPI report.

The details here are quick, let's dive in👇

 

Labor Spooks the Market:

We're beginning to notice a pretty common whipsaw motion that keeps hitting the market every month. Basically, every time ADP posts private payrolls, the market overreacts and sells off. Then, a day or two later, federal data comes out that shows a cooler picture of the labor market and things stabilize. 

We got a particularly intense version of that last week when ADP reported more than double the number of jobs expected -- nearly topping half a million. Meanwhile, Federal Non-Farm Payrolls showed the first decline in job growth in over 14 months. 

Rather than talk about the disparity here, let's key into the only figure from these reports that actually matters: wage growth. 

Average wage growth is almost exactly in line with inflation right now, sitting at 4.4%.  That's all the information we really need to not be fully spooked out of the market right now. Wages are what really drive demand, and wages are only in line with inflation because of a rapid return to leisure and hospitality work right now. 

The market sold off on Thursday because of fears the Fed would have to keep raising rates even more, but wage growth suggests they'll only need to keep it to the 2 additional increases the Fed has already telegraphed. 

Of course, we'll get even more clarity this week once the CPI print is released on Wednesday. If that comes back moving in the right direction, the stock market may just forget about labor entirely. 

 

How EVs Keep Winning:

Compared to the rest of the market, EVs were absolutely meteoric last week. Tesla led the charge, rising over 7% thanks to some astounding delivery and supercharger network news.

Basically, despite the world economy still being pretty slow, Tesla still found a way to completely demolish delivery estimates. This comes as a huge surprise given that a lot of Tesla production happens in China and that economy is still struggling to re-activate after COVID lockdowns were lifted this year. 

But an even bigger winner of basically the same trend was Rivian, who have added 53% to their market cap in the last week alone. Rivian completely defied its own expectations and managed to boost delivery guidance to over 50,000 vehicles this year. 

Swings like this probably give investors pause, but they make sense given the EV model. 

Building an electric vehicle is a lot simpler than building an internal combustion engine and traditional car. You have really difficult supply problems to solve, but the tradeoff is you can scale production quickly if you get things right. 

Rivian simply managed to turn things around quickly enough to get back on track for the year. Their stock price now reflects where we assumed the stock would be right now anyway. The EV market definitely brings a lot of volatility, but that's because there's a tremendous amount of value powering the market. 

 

Wrapping This Up:

All-in-all, we're excited about where Q3 has taken us so far. We won't get a lot of clarity about the full market until the CPI print is released on Wednesday, but we're eager to see a lot of progress there.

Inflation is gradually getting more and more under control and the market is finally ready to believe in a bull run. 

We'll keep you posted as the market develops.