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Growth Team Weekly Investment Insights

1) Inflation Progress Shows Signs of Slowing

Last week brought signs that progress towards the central bank’s inflation target may be slowing as both the Consumer Price Index (CPI) and Producer Price Index (PPI) metrics were higher than expected.

 

 

 

Source: Artisan/FactSet. As of 3/15/2024.

 

 

 

Source: Artisan/FactSet. As of 3/15/2024.

Not too long ago, markets were pricing in a near-certain chance of a rate cut from the US Federal Reserve in June. However, these odds are falling fast, and Treasury yields are rallying. 

 

 

 

 

 

 

 

 

 

 

 

Source: Artisan/FactSet. As of 3/15/2024.

2) Retail Sales Disappoint Again

Despite continued strength in the job market and decent wage gains, the recent retail sales data suggest consumers are moderating their spending. US retail sales rebounded a less-than-expected 0.6% in February after declining 1.1% in January.

 

 

 

Source: Artisan/FactSet. As of 3/15/2024.

The disappointing inflation data combined with weakening economic data renewed stagflationary fears.  

3) Tesla and Apple Struggle in China

Tesla and Apple have both lagged YTD. In fact, as of March 15, Tesla surpassed Boeing to become the worst performing stock within the S&P 500® Index in 2024.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Artisan/FactSet. As of 3/15/2024. Past performance does not guarantee and is not a reliable indicator of future results.

Both companies have been struggling within China, as profiled within a Financial Times article last week. Highlights include:

• Outside of the US, China is both Apple and Tesla’s single-largest market, respectively contributing 19% and 22% of total revenues during their most recent fiscal years.
• The shift away from Apple has been driven by a top-down campaign to reduce iPhone usage among state employees and the triumphant return of Chinese national champion Huawei, which last year overcame US sanctions to roll out a homegrown smartphone capable of near 5G speeds.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

• Tesla has repeatedly turned to a discounting strategy to maintain sales in the country. The US electric-vehicle (EV) maker most recently offered incentives worth as much as Rmb34,600 ($4,800) to lure Chinese consumers to purchase Model 3 sedans and Model Y sport utility vehicles.
• In the first two months of the year, Tesla’s market share of China’s new energy vehicle sales, which include EVs and hybrid plug-ins, slipped to 6.6%, from 7.9% in the same period a year earlier, according to the China Passenger Car Association.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4) Automakers are Joining Forces to Compete in EVs

On the topic of EV price competition, this Financial Times article highlights how Honda and Nissan are joining forces in hopes their collaboration and scale will allow them to produce EV at prices that compete with Chinese rivals. Highlights include:

• Nissan and Honda, which each sell about 4mn vehicles a year globally, hope to bring down costs by pooling their resources. They were caught off-guard by the rise of China’s homegrown EV groups such as BYD, which outsold Tesla for the first time in the final quarter of 2023.           
• The chief executives of the two Japanese groups on Friday said the scope of their co-operation would include software, core EV components and auto intelligence technology.
• This announcement came just days after Volkswagen said it may collaborate with Renault, as traditional carmakers combine forces in the face of the threat from Chinese EVs. The pair will decide in the coming months whether they will push ahead to develop a vehicle that can be made in Europe and sold profitably for under €25,000.

5) Housing in The News

In order to combat housing affordability problems, President Joe Biden is calling on Congress to enact various initiatives highlighted in this White House factsheet.

• From a demand perspective, proposals include “Mortgage Relief Credit”, which would provide middle-class first-time homebuyers with an annual tax credit of $5,000 for two years. This is the equivalent of reducing the mortgage rate by more than 1.5 percentage points for two years on the median priced home.
• On the supply side, proposals include a one-year tax credit of up to $10,000 to middle-class families who sell their starter home, defined as homes below their county’s median home price, to another owner-occupant.

Also in the news was a settlement reached by the National Association of Realtors for claims that the industry conspired to keep agent commissions high. This Wall Street Journal article highlights the changes (if everything gets final approval). Most notably, under the settlement, home buyers and sellers are open to negotiate fees, which should theoretically drive down overall commissions rates.