Flagship Pod 85: Why Tesla sold off, Markets cool, Crypto in review

07/24/2023
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Now let's get into what we reviewed.

 

Here are the 4 key things we went over:

  • Why Tesla stumbled during earnings this week

  • What shifts we're seeing as investors move from growth to value stocks again

  • How these trends will play out across the rest of 2023

  • Where the next black swan event can come 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:

It honestly was a relief this week when the rally in tech and growth stocks started to stall. It helps us to know that greed can't drive the market indefinitely. 

We're hoping to find long term trends strong enough to keep winning through the back half of 2023 as this punishing rate environment will simply steepen this era of winners and losers.

What we saw this week was companies like Tesla get punished for not having the margins to back up their AI and manufacturing aspirations. Instead, airlines soared on reports that their demand is back with margins to match. 

The year of efficiency is in full swing and only the most efficient orgs will be able to keep positive momentum moving as we slip further into this challenging interest rate environment. 

A lot of small details here add up to a cohesive whole, so let's make sense of these markets 👇

 

The Shift from Growth to Value:

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 rocketing back up as the wider market basically has started treating the COVID 19 pandemic like it is already over, the biggest costs facing airlines have 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 boon. 

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 into 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 great growth so long as their algorithms are driving more engagement on Instagram (though we probably wont get and real Threads data for another quarter).

Microsoft 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.

 

Promises Are Not Enough:

We are honestly ecstatic to see that Tesla stock fell in the short term.

Tesla's margins are compressing with huge increases in R&D costs while they are simultaneously reducing the cost of each vehicle sold. Sure, this lead to a record amount of revenue and vehicles sold -- but investors only want to hear about margins right now.

Tesla attempted to distract traders from reduced margins by talking up how their AI ambitions will finally bring Full Self Driving to the market by the end of the year. They also made a lot of fanfare about the first Cybertruck models coming off the assembly line in Texas, even though they wont be sold or scaled until (probably) 2024.

Finally, they also brushed off margin concerns by projecting that their new factory upgrades over the summer would be sufficient to bring profits back up to the levels the market has grown accustomed to. 

But, all that future growth simply wasn't enough for a market that has grown to love the year of efficiency. We are deep in profit season and Tesla (for now) is not delivering, which caused the stock to get dinged by nearly 10% last week.

We're still bullish on Tesla in the long term and will update our PT once they deliver more concrete numbers and news about all these promises. But in the short term, the selloff is really encouraging because it shows that greed and mania have not fully taken control of the market. This rally has been great, but a lot of traders are worried it is a very thin veneer of greed painted over busted fundamentals. 

Instead, we see a cautious market that has simply been presented with a once-in-a-decade sea change in technology. It doesn't matter if you're in a bear environment when the future comes knocking and has great numbers to back up its promises.

Our hope for the rest of earnings season is that the big tech names who originally kicked off this rally will continue to grow and prove that this AI tech really has legs for the short term. This week will be critical, especially with profits set to decline across the entire S&P 500 this quarter. 

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Wrapping This Up:

In the actual podcast, we dove deeper into the actual trends that will develop across the next 6 months.

The deeper we get into the year, the more important each individual earnings call becomes as this punishing interest rate environment causes more and more damage over time.

We'll see winners stay strong, but more losers could emerge as our battle against inflation rages on. 

We are very much in a stock picking era, but we're excited to watch the market keep turning around. 

We'll keep you posted as the market develops.