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Growth Team Weekly Investment Insights
In this week’s blog post, we highlight some of our takeaways from the first quarter’s market returns. Equity markets continued their ascent in March and capped off a very strong first quarter of 2024. Performance has looked a lot like the past year or so, with the United States, larger caps and growth leading the way.
Source: FactSet, as of 3/31/2024. Local Returns. Past performance does not guarantee and is not a reliable indicator of future results.
1) This Was a Rare Quarter for the S&P 500® Index
Source: FactSet, as of 3/31/2024. Price Returns. Past performance does not guarantee and is not a reliable indicator of future results.
2) Market Returns Were Concentrated
The Q1 return contributions within the Russell 1000® Growth Index looked even more concentrated than 2023 as the Magnificent Seven became the Fab Four. NVIDIA, Amazon, Microsoft and Meta drove nearly 70% of the index return, far higher than their combined average weighting of 28.5%.
Source: FactSet, as of 3/31/2024.
However, that was relatively tame compared to what went on in the Russell 2000® Growth Index. Two securities, Super Micro Computer and MicroStrategy, drove over 50% of the total index return versus their combined average weighting of 3.6%.
Source: FactSet, as of 3/31/2024.
3) Information Technology's Deceiving Leadership
This concentration of returns also had a large impact on the information technology sector returns. On the surface, it looked like IT experienced a strong quarter. However, if you strip out the outsized returns of the two massive artificial intelligence beneficiaries (NVIDIA and Super Micro Computer), the sector underperformed in the quarter.
Source: FactSet, as of 3/31/2024. Past performance does not guarantee and is not a reliable indicator of future results.
4) Japan Continues to Outperform
Non-US developed markets, as measured by the MSCI EAFE Index, largely kept pace with US markets in Q1, mostly driven by strong performance in Japan. Its stock market is the second largest in the world, but it hasn’t deserved much attention over the years. The Nikkei 225 Index just recently recaptured highs last reached in 1989.
Japanese stocks were up 11% in the first quarter, in US dollar terms. However, there was a large currency headwind in the quarter. In local terms, the return was 19%, far outpacing US returns.
If we zoom out to the beginning of 2023, Japanese stocks within the MSCI EAFE Index are up 53% in local terms. This compares to 58% for the Russell 1000® Growth Index over the same period.
Source: FactSet, as of 3/31/2024. Past performance does not guarantee and is not a reliable indicator of future results.
5) Emerging Markets Dragged Down by China
After being the worst performing country within the MSCI Emerging Markets Index in 2023, China lagged again in the first quarter of 2024. This Wall Street Journal article points out the depressed valuations of the leading Chinese technology stocks after this period of underperformance.
Looking at Tencent, the company ended the quarter at a market value below where it was five years ago despite meaningful earnings growth over the period. This has led to meaningful multiple compression, such as the NTM P/E, that has been cut in half over the past five years.
Source: FactSet, as of 3/31/2024. Local currency.
Source: FactSet, as of 3/31/2024.
The big question is if these companies, and China in general, can regain investor confidence to drive improved sentiment and support expanding valuation multiples.
Artisan Partners Growth Team manages portfolios which held securities issued by Amazon, Microsoft and Tencent as of 12/31/23. Portfolio securities are subject to change.
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