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Growth Team Weekly Investment Insights
1) One Company is Driving Most of the YTD Russell 2000 Growth Return
An interesting phenomenon happening within small caps this year is the dominance of Super Micro Computer. At the beginning of 2023 the company had a 0.33% position in the Russell 2000 Growth Index that grew to 1.07% by the end of the year after stellar performance of nearly 250%.
The company’s momentum has continued in 2024. It has returned another 182%, grown to a market cap of over $40B and contributed the majority of the index’s YTD return (as of 2/16/2024).
FactSet, as of 2/16/2024. Past performance does not guarantee future results.
Source: FactSet/Russell, as of 2/16/2024. Past performance does not guarantee future results.
2) A Macro Driven Week: CPI, PPI and Retail Sales
Consumer prices rose a more-than-expected 0.3% month over month in January. On a year-over-year basis, the inflation rate dipped to 3.1% from 3.4%, while the core rate held steady at 3.9%. The shelter reading continues to be elevated and far higher than real-time measures (the January YoY Zillow Rent Index reading was 3.0%). Stripping out shelter, the reading is below the fed’s 2% target.
Source: FactSet, U.S. Bureau of Labor Statistics. As of 2/16/2024.
Similar data was released on Friday as the jump in producer prices was also larger-than-expected.
Source: FactSet, U.S. Bureau of Labor Statistics. As of 2/16/2024.
Fueled by low unemployment and easing inflationary pressures, retail sales showed resilience through 2023. However, last week’s retail sales data indicated consumer spending stalled entering 2024. January retail sales unexpectedly fell -0.8% and the prior two months’ readings were revised lower.
Source: FactSet, U.S. Census Bureau. As of 2/16/2024.
3) News outside the US
We also got a lot of data across other major economies.
United Kingdom
The UK had a bit of good and bad news last week. The good news was inflation remained steady at 4% in January (versus expectations of 4.2%). Traders are now pricing a quarter-point cut by June as a 65% probability, up from 40% before the data was released.
The bad news is the country slipped into a technical recession as GDP declined -0.3% in Q4 2023, following a 0.1% decline in Q3.
Japan
Like the UK, Japan’s economy slipped into a technical recession. Q4 GDP growth was -0.1% versus expectations for +0.2%-0.3%.
Officials at the Japanese central bank had been growing increasingly confident that the economy is robust enough to attempt an exit from its negative interest rates policy. However, economists expect this recent data release to complicate things, and probabilities for rate increases fell.
Also, after reporting these economic growth results, Japan has lost its spot as the world’s third largest economy. It fell behind Germany to the fourth spot.
4) Earnings Season Recap
FactSet released its latest overview of the earnings season. As of the end of last week, 79% of S&P 500 companies had reported earnings results. Of these companies:
Source: FactSet, as of 2/16//2024
5) The Concentrated Semiconductor Foundry Market
In our 2023 paper on semiconductors, we highlighted that that most leading-edge chips are sourced from East Asia, giving rise to geopolitical and supply chain concerns.
This chart from Visual Capitalist does a good job of visualizing this. The article also points out that 98% of the industry’s revenue is concentrated in the top 10 foundries and 90% of the market is controlled by three countries: Taiwan, South Korea and China.
Source: Visual Capitalist, https://www.visualcapitalist.com/semiconductor-foundry-companies-ranked/
These concerns have resulted in a global focus to bolster onshore manufacturing. The US passed the “CHIPS and Science Act,” the EU passed the “European Chips Act,” Japan announced a multi-billion-dollar initiative to boost its domestic chip industry and China cited the semiconductor industry as a key area of focus in its updated Five-Year Plan.
Artisan Growth Team manages portfolios which held securities issued by Taiwan Semiconductor as of 12/31/23. Portfolio securities are subject to change.
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