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Growth Team Weekly Investment Insights
1) Credit Card Data Suggests Consumer Weakness?
Like most things in this industry, looking at credit card data sends a nuanced message about the health of the consumer. This Financial Times article highlights elevated credit card levels, which combined with the nosebleed interest rates, may indicate consumer stress. Annual rates hit 22.8% at the end of 2023, surpassing previous highs set in the 1980s.
Since 2020, credit card interest and fees have increased by $51bn to $157bn (~50% growth) and delinquencies on credit card loans are also running at their highest level in almost 13 years. However, there are some caveats to this data.
First, while the nominal credit card levels are elevated relative to history, on an inflation-adjusted basis they are still lower than the global financial crisis (GFC) highs.
Also, while delinquencies are at a post-GFC high of 4%, they are still a long way off from the GFC high of 7.1%.
2) Rate Roundup: United States, Eurozone, and Japan
United States
As expected, the Federal Reserve held interest rates steady at its policy meeting last week. Officials still expect three rate cuts in 2024 as firmer-than-expected inflation in the first two months of the year does not seem to have derailed the central bank’s plans.
Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, March 2024
Source: Federal Reserve, Summary of Economic Projections. As of 3/24/2024.
Eurozone
Last week, the European Central Bank (ECB) kept rates at 4% at its meeting, but it lowered its inflation forecast for this year to 2.3% (down from 2.7%), opening the door to possible rate cuts in the coming months.
Japan
Last week, the Bank of Japan (BOJ) announced its first rate hike since February of 2007 after having seen enough evidence of core inflation stabilizing at or above its 2% target level—the BOJ’s stated prerequisite for altering its policy stance. Japan was the last major economy to employ a zero or negative interest rate policy. For Japan, the latest surge in inflation was a welcome sign that its long battle with deflation was finally coming to an end.
Source: Statista, https://www.statista.com/chart/31930/japan-interest-rate-and-inflation/. As of 3/19/2024.
3) Lonza Makes Aquisition to Support Future Growth
Last week, Lonza (one of the largest contract development organizations, or CDMOs) announced it was buying a manufacturing facility in the US from Roche for $1.2bnin an effort to boost growth in its biologics division. Drug development is complex, and CDMOs such as Lonza allow pharmaceutical and biotech companies to outsource their drug development and manufacturing needs. This provides several benefits, including reducing or eliminating infrastructure costs, providing access to additional expertise, and enabling pharma and biotech companies to rapidly scale capacity.
Lonza, along with much of the CDMO industry, has experienced weakness over the past couple of years due to early-stage biotech funding weakness and working through elevated COVID-19 related inventories. However, we believe in the long-term opportunity driven by the growth of biologic therapies.
4) Breaking Out FactSet Analyst Ratings
FactSet released an analysis of analyst ratings. The first takeaway is a bullish bias among sell-side ratings as the percent of “Buy” ratings is consistently >50% and there are very few “Sell” ratings.
The second takeaway is analysts seem to be broadly less optimistic on more cyclical-oriented sectors. Materials, industrials and financials are three of bottom four sectors in terms of “Buy” ratings while communication services, information technology and health care are three of the top four.
Source: FactSet, as of 3/18/2024
5) 365 Straight Days of Record Ocean Temps
According to this Financial Times article, oceans extended a streak of record surface temperatures to more than 365 days in a row.
Artisan Partners Growth Team manages portfolios which held securities issued by Lonza as of 12/31/23. Portfolio securities are subject to change.
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