Flagship Pod 87: Key Stocks, 2023 Predictions, Summer Lull


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Now let's get into what we reviewed.


Here are the 4 key things we went over:

  • What all the negative data coming out of China actually means for you

  • Why the markets keep selling off gradually

  • How the shift from growth to value is playing out

  • Where we see retail spending headed from here

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 summary๐Ÿ‘‡


Another losing week on the books is really starting to make folks question if we're running out of gas for this market. 

A lot of China fears have investors worried about inflation, while retail spending stays strong enough to spark more rate hike concerns. 

We're in this really volatile moment where we need to thread the needle by keeping the economy active enough while not sparking further inflation, and the market is responding by being super jumpy at the first signs of any economic danger. 

So this week on the podcast, we untangled a big pile of market narratives and tried to make sense of where this recovery is headed.

  1. Is China big enough and weak enough to take down the whole economy with a 2008-style collapse?

  2. Are investors ready to abandon this bull market at the first sign of imperfect earnings?

  3. Can consumer spending stay strong enough to maintain economic growth while inflation slowly gets under control? 

The market is having difficulty answering these questions in the short term, so let's lock in a longer view on it and get some clarity from all these fears. ๐Ÿ‘‡


One Last Look at the China Situation:

Since the Hang Seng Index ended last week in bear territory and a collection of bad news came out of China (again) let's take one last quick look at China's sputtering recovery and see if there's anything really big to worry about here. Let's break down what went down last week: 

  • Evergrande finally filed for bankruptcy protection in the U.S. And sure, that makes for some meaty and terrifying headlines, but Evergrande has basically been going bankrupt for the last year and a half. If any firms were still overexposed to the ailing Chinese property developer, they basically deserve to get taken out at this point. In reality, Evergrande lasted as long as it needed to in order for the markets to insulate themselves from their collapse. This made way more headlines than what actually worried us:

    • A prominent Chinese firm missed interest and principal payments. Zhongrong International Trust just missed interest and principal payments totaling $14 million after a few disappointing quarters. This could be a sign of restructuring at best and the beginning of insolvency at worse. If this trend continues, investors worry that this really could be the start of a pure credit crunch in China.  

  • The People's Bank of China is making one last desperate move to defend the Yuan. These defensive measures are designed to shore up the Yuan -- pegging it to exactly 7.2006 Yuan per dollar. This is far below where the market was valuing the Yuan, at around 7.25. All these numbers aside, this move is another desperate bid to keep the Yuan from crashing further as the Chinese government tries to restart economic growth without crashing the whole system. 

All of these really spooked investors early Friday morning, but they aren't the worst possible sign as they are all isolated incidents. The thing we need to be careful about as investors is not knowing the trendline in a news story. We're going to watch Chinese inflation and import/export data next month to get a real sense of where the Chinese economy is going. This easily could be just a brief blip in these metrics while China does the difficult work of jumpstarting its entire economy. 

It's easy for fears to reign in August as that's typically the worst-performing month for the stock market. The dog days of summer really drag the market down. So what are we actually looking forward to? 


Breaking the Shift From Growth to Value:

There's a genuine hinge point approaching in the markets this week: And it's Nvidia earnings. 

Basically, Nvidia's massive beat in the past two quarters set up a huge swing from value stocks back to growth names as AI took the market by storm. 

But now that there hasn't been a lot of AI news in the past few weeks, the market is softening on the whole trend. 

Meanwhile, every major financial institution has raised its price targets for Nvidia ahead of their next earnings call. 

Expectations couldn't be higher for Nvidia, and frankly, most investors don't think they can meet those expectations. 

So, if Nvidia posts an improbable earnings beat next week, there's a solid chance AI mania will take hold again and send the NASDAQ ripping back up. 

However, if Nvidia finally starts coming back to earth a little, this growth slide will continue and we'll see the NASDAQ regress to the mean a little bit further. 

Both outcomes are good in the long term as AI has genuine legs and Nvidia is a genuine leader in the space, but another beat might start causing the company to beat out the laws of thermodynamics. 

If we see that regression to the mean, that's a strong signal that we're in a typical recovery that will take a lot of time. The Q2 bull run was fun, but now we're back to the volatile, jumpy market we were supposed to be in the whole time as we slowly grind toward resolving inflation. 


Wrapping This Up:

All in all, we're in a situation where volatility reigns.  

We're still picking up on where the market is putting value in terms of good investments. But basically, brands need to be perfect. 

We need to see immaculate profits coming in tandem with solid revenue growth. That's really hard for most brands to pull off right now. 

So we'll stay comfortable picking the strongest players in their respective industries and try to shore up as much long term value as possible.  For now, the game is just staying as long term as possible while we move through to the end of 2024. 

We'll keep you updated as things develop. โ€‹