It’s no secret that the markets have been struggling lately. But some of our favorite EV stocks have shown some impressive resilience amid the selloff. One that comes to mind is Rivian (RIVN), which could see an even better 2023. Now, why are these stocks outperforming? And more importantly, will this trend continue?
The entire energy trade has been strong – everything from natural gas, oil, uranium, energy storage, solar, electric vehicles. Indeed, earlier this year, despite soaring battery metal prices, EV sales were still hitting record highs. And this wave is continuing as that “headwind” has become a tailwind. Battery metal prices are falling, and we think that could lead to EV price reductions in 2023. It seems this energy rally has legs.
This is great timing for assets like Rivian stock. Indeed, things are just ramping up for the company here in 2022. But over the next few years, production will really pick up the pace. As the macro environment improves during this ramp, it will really help the company’s sales and margins. And Rivian stock could be primed for excellence.
Today, investors are simply waiting for the Fed to take inflation out back and shoot it. The only question is: How bad will that collateral damage be? For EVs, a shift in consumer preference is a strong tailwind that should survive no matter how much collateral damage we see. It’s a resilient space.
Now, as Aaron notes in this week’s episode, a slowing economy, falling inflation, and lower yields all set the stage for a market rally into the end of the year. So why aren’t people buying into that rally right now?
Indeed, according to the data we’re seeing, we’re in for falling inflation, a dovish evolution of the Fed, and lower Treasury yields over the coming months. And based on those three things, stocks should rally big into the end of the year.
But if the opposite happens – inflation stays hot, the Fed remains hawkish, and yields go higher – stocks will collapse. And the fear of that outcome is so strong that it has investors sitting on the sidelines. They want more proof to emerge before they’re willing to put some skin in the game.
And we think that proof will come very soon – in the form of the September CPI print. It’s likely to be much softer than expected and show a rapid deceleration in inflation. And after, we’re likely to hear some dovish Fed commentary about future rate hikes. Given that, stocks should head higher over the next four weeks. But we’ve got to get to that print first.
Investors fear CPI will come in hot, and that’s got the markets really choppy. And until we get some clear answers from the Fed, it’ll remain that way.
Now, the bear thesis hinges on the idea that inflation is structural. But this isn’t the 1970s. We have so many disinflationary forces at our fingertips today. There are so many tools in the toolkit nowadays that we can adopt as needed to make sure we crush inflation. So, it’s highly unlikely that the bear thesis here is correct. Indeed, by 2023, inflation will be a diminishing problem. And all signs point to a mega rally into 2022’s end.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.