Thursday, April 25, 2024
Stock Market

Add a New Bull Market to Your Christmas List

In this week’s episode of Hypergrowth Investing, we dive into all things macro.

Take inflation – it’s been the 2022 word of the year. And finally, as we head into 2023, it’s starting to come down in a big way. We got a much cooler-than-expected Consumer Price Index (CPI) report on Tuesday. As a result, the market has been on a tear. And we think this rally is just a taste of what’s to come.

It seems clear that inflation will crash back to 2% over the next 12 to 24 months. In fact, over the past 100 years of market history, we’ve had seven prior periods of red-hot inflation that became disinflation – just like what we’re seeing today. Each time, when inflation began to fall, it kept going lower. On average, we saw two to three years of disinflation and about 10 points off of the CPI. 

The current disinflation wave has begun, and it’s still early in this ballgame. The forces are in motion – and they’re going to stay that way for a long time. We’re confident that in 2023, disinflation will be the word of the year. And since stocks respond positively to that kind of environment, we’re quite bullish on the markets here.

Fed Impact

Now, inflation isn’t the only piece to this macro puzzle. It’s imperative that it crashes – and it’s also imperative for the Fed to pivot dovish in response. Given the cooler-than-expected data we’ve received over the past two weeks, we think the Fed will continue to lean into its recent dovishness. Stocks should pop big in response, and that will lead to a new bull market in 2023.

In fact, we think that despite what most investors are anticipating, we’ll get a “soft landing” from the Fed next year. And the data supports this thesis. 

Over the past several months, we’ve been seeing major disinflation without much labor market destruction. Back in the 1980s, we were in a similar disinflationary cycle – but at that time, unemployment rocketed to around 9%. We saw something analogous in the 1970s. But today, the Fed is tamping down inflation without harming the labor market. And that’s highly conducive to a soft landing. We’re donning our optimist caps for this one. Bull market incoming!

The Big Short: Tesla

But enough about the Fed. Let’s pivot (pun intended) and check in on a stock we haven’t mentioned in a while – Tesla (TSLA). We’ve been bearish on this one for a while. It was the first mover and, really, the only viable competitor in the EV space for years. But since its production ramp in 2019, a lot of competition has entered the fold. 

Legacy auto companies are increasingly electrifying their own models. Plus, a swath of new entrants are coming into the market. And many – like our favorites Rivian (RIVN), Lucid (LCID), and Fisker (FSR) – are growing nicely. As a result, Tesla has and will continue to lose market share over the next few years.

The stock has come down quite a bit. Normally, we’d say to take profits on the short and move on. But the bear thesis is actually getting stronger. Elon Musk’s Twitter takeover and injection into the political realm has not been a good move for Tesla. We think it will continue to see a net loss in customers, and the share price will keep falling. Regaining momentum will require some significant changes. And until that happens, TSLA will remain a dead duck.

China Outlook: A New Bull Market for Tech Stocks?

And like a lot of the market, Chinese stocks were crushed in 2022. Recently, they’ve been bouncing back on hopes that the economy will reopen next year. Should we be buying?

Yes (but not hand over fist). We think that in 2023, China will experience what the U.S. did in 2021 – pent-up consumer demand coupled with loose monetary conditions to unleash a massive economic boom. Indeed, especially after nearly three years locked down, there must be an incredible amount of pent-up demand in the country. 

Now, this reopening will be choppy, but that shouldn’t impact the bull thesis here. That’s well-priced into these stocks. And this major catalyst on the horizon could spark massive revenue and earnings growth – and send these stocks soaring. Throw that market a bone or two and see what happens over the coming year. There may be a new bull market brewing in Chinese tech stocks.

On the date of publication, Seth Kuczinski did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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