3 Stocks Winning The Inflation BattleFeb 20, 2023
Every Friday we host a live 1:1 discussion at 12pm EST.
This gives you the opportunity to ask us any questions you have on the markets, the economy, crypto, and more!
Here are the 4 key things we went over:
Why the CPI came in hotter than expected
- How US consumer debt hitting $16 Trillion will affect our recovery
What stickier inflation signals for the larger economy
Which companies are winning in losing during this new normal
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.
Well, at least we got one week off from talking about Jerome Powell and inflation.
This week, the CPI came in just a little too spicy at 6.4%. Sure, that's still showing a downward trend for inflation month-over-month, but inflation was still spicier than we expected.
That, along with some wild market data, was enough for the market to turn mildly bearish last week.
As we move through the back half of Q1--it looks like we've got more questions than answers about the macro environment. We're choosing to stick with Jerome Powell's rosier view on inflation
But that doesn't mean we don't have concerns. We are one month of energy going to the bad side of volatility away from being right back to concerning levels of inflation.
Meanwhile, the labor market is still showing strength--meaning the Fed may have to get tougher here.
But it isn't all inflation news either--this week gave us a solid crop of earnings that make us confident that businesses are doing a solid job of weathering inflationary pressures. Rather than rates being something that crushes the market--all the Fed is doing is revealing who actually has a strong business.
The era of free money may be over for a little bit--but a solid crop of stock picks can get any investor through this volatile first half of 2022.
There's a lot more to cover here, so let's dive through the details 👇
Inflation Vs. the US Consumer:
So, inflation coming in too hot is definitely a big deal--but what's driving it upwards?
The short answer: everything but used cars.
Sure, broadly there were some minor decreases across the market that resulted in aggregate inflation being down by half a percent compared to last month, but the market anticipated cheaper food and more gains in shelter than there were.
Furthermore, we're through the winter, and energy prices should start decreasing a lot more as things like fuel oil get cheaper--but volatility can swing both ways.
So the market did not react well to this CPI--with a lot of analysts developing concerns that this could be the downward trend bottoming out and starting to go back up.
A few factors compounded this:
Retail sales popped by 3% in January. Sure, spending is a good thing and a great sign that we're not actually entering a recession--but that spending can also keep pushing inflation up. We're eager to see demand cool off a little more. Retail sales numbers like this--combined with a labor market that refuses to quit--could signal that the Fed needs to be a little more aggressive to achieve its mandate.
Wholesale prices came in much higher than expected. While the CPI is a better read for inflation writ large, wholesale prices are more of a leading indicator for where inflation will go in the next few months. Wholesale prices peaked in March--three months before the CPI did in June. If those prices are starting to spike, we may be in for more trouble. However, those producer prices are also subject to a little more volatility--so those figures can potentially go down more quicker. We'll have to see
So, we have a situation where the US consumer is still buying despite being a year deep into this inflationary period. This produces a mixed bag of signals. First, consumer debt went up to over $16 trillion this month--signaling that consumers here are not dipping into savings but are just more willing to go into debt. Debt is fine in the short term, but we are going to watch this closely as delinquencies are on the rise.
All in all, there is simply more noise than signal coming from the economy this week. We'll have to keep a close eye on this to see how spending and inflation develop.
Winners are Emerging:
But, inflation was only going to lead to a full-on market crash if companies across the board started buckling under the weight of rising costs. Instead, we're watching a solid cohort of industry winners emerge in the back half of Q4 earnings season.
DraftKings is soaring after raising its guidance for the year and compressing its loss-per-share. A super bowl where the (heavy) betting favorite lost in brutal fashion is great for these sportsbook platforms.
AirBnB is returning back to equal-weight after a tough 2021. When it comes to travel, we're more bullish on airlines though. AirBnB has some structural issues we want to see resolved before we become more bullish on them.
Roblox has started its long road to recovery with solid revenue numbers.
All in all, we're seeing some solid strength come out of the markets this earnings season. It's no longer about the whole economy crashing--it's about who will survive and who will get crushed under the weight of rising costs.
Q2 Earnings season is set to be another bloodbath--but one where there will still be solid winners
Inflation in Review:
We really wanted to see more progress on inflation than we got--but that's fine.
The road out of this inflationary environment was always going to be a long one, and so now we're dealing with our first major turn as prices are slowing their downward trend.
If the next CPI shows an uptick--the market is going to rush back to bear sentiment pretty quickly. If we maintain this progress, we'll have another month of volatility and cautious investment.
Meanwhile, 10-year treasury bonds are almost at 4%. That's honestly starting to look really attractive for all you 60/40 investors out there.
But the team at Moby.co is going to get back to our long-term narratives this week. Gear up for some solid analysis coming out of healthcare and the industrial sector.
No matter where inflation takes us--it looks like there's still money to be made.
Keep your buy-ins small and your time horizons long y'all.