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Growth Team Weekly Investment Insights

1) Job Openings and Labor Turnover Survey (JOLTS) and Institute of Supply Management’s (ISM) Index

Last week’s macro calendar was labor-heavy. First up was the JOLTS report, which displayed continued easing in the number of job openings.

 

 

 

 

 

 

 

 

 

Source: FactSet, US Bureau of Labor Statistics. As of 5/3/2024

Then payroll data was released. Job growth of 175,000 was considerably less than the 235,000 consensus, and the unemployment rate rose to 3.9%, up 0.1% from March. Furthermore, average hourly earnings grew less than anticipated. These labor results seem to have threaded the needle between easing investor fears of acceleration and offering reassurance that the economy is still healthy.

 

 

 

Source: FactSet, US Bureau of Labor Statistics. As of 5/3/2024

Another notable piece of data was the Institute for Supply Management’s services index, which fell to 49.4. A reading below 50 indicates a contraction in activity and services account for two-thirds of the economy. Looking back over the history of this data point, it rarely falls into contraction territory.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: FactSet, Institute of Supply Management. As of 5/3/2024

2) Europe: Rising Growth, Slowing Inflation and a Valuation Discount

As this Financial Times article points out, things are looking up in the euro zone. After 18 months of very little economic growth, Q1 results surprised to the upside. inflation continues to look under control, and rates are still expected to be cut in June. And valuations relative to US equities appear opportunistic.

• Eurozone gross domestic product expanded at a quarterly rate of 0.3% in Q1. That is its fastest rate since Q3 2022 and an improvement from a contraction of 0.1% in Q4 2023.
• many’s economy (Europe’s largest) grew at a quarterly rate of 0.2% in Q1 versus a 0.5% contraction in Q4.

 

 

 

 

 

 

 

 

 

 

 

• Data also showed that eurozone core inflation—excluding energy and food prices—continued to fall from 2.9% to 2.7%, in a reassuring sign for investors hoping the European Central Bank will start cutting interest rates in June.

 

 

 

 

 

 

 

 

 

 

 

• And last, valuations of US stocks versus Europe stocks have been diverging for much of the last decade. A decade ago, the Russell 1000® Index traded at a forward PE multiple that was two points above the MSCI Europe Index. Today, that gap is seven points.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Artisan/FactSet/Russell/MSCI. As of 4/30/2024.

3) In Small Cap Growth Investing, Biotech Expertise is Crucial

As growth investors, we believe an area of the market that tends to offer opportunities is health care, specifically biotechnology. We also believe it is one area of the market that offers the most opportunity to generate differentiated results, especially within small caps.

Biotechnology is the second largest industry by weighting within the Russell 2000® Growth Index (only behind software), but it is the largest in terms of the number of holdings. As of the end of April, the biotechnology industry accounted for 136 of the index’s 1,036 constituents.

 

 

 

 

 

 

 

 

 

 

 

Source: Artisan/FactSet/Russell/GICS. As of 4/30/2024.

Looking at the trailing 1-year returns of all the industry contituents; the range of outcomes displays the incredible volatility of these companies. Fourteen have returned >100% in this 1-year period, while 36 have returned worse than -50% (14 worse than -70%).

 

 

 

 

 

 

 

 

 

 

 

 

Source: Artisan/FactSet/GICS. As of 4/30/2024. Past performance does not guarantee and is not a reliable indicator of future results.

4) The Live Music Industry is Booming

According to Pollstar, the 100 largest tours of 2023 grossed more than $9bn, exceeding the previous record, set in 2022, by almost 50%.

• The historic result was achieved thanks to a combination of factors, as ticket sales were up 18% despite a 23% increase in average ticket prices.
• Taylor Swift’s record-breaking “Era’s Tour” and Beyoncé’s “Renaissance Tour,” together with Bruce Springsteen’s latest world tour, accounted for more than 20% of the global top 100 gross sales.

We are attracted to the live music industry due to the proliferation of music streaming services driving demand growth for live entertainment. While streaming allows artists to quickly gain a global audience reach, the economics are poor. As a result, artists rely more on events to generate income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Statista, https://www.statista.com/chart/32177/box-office-gross-of-the-global-top-100-music-tours/

5) Novo Nordisk Reports 100% Growth in Wegovy

As reported in this Financial Times article, Novo Nordisk reported better-than-expected quarterly sales of DKr65bn ($9.3bn), up 24% YoY year at constant exchange rates, and net profits jumped 28% to DKr25bn. The company also raised its guidance and is now expecting sales to grow between 19%–27% in 2024.

• However, while sales of Wegovy more than doubled in its first quarter, to DKr9.4bn, the result was lower than analysts expected, due to the decline in prices in response to greater competition from US rival Eli Lilly.
• The company said it was now prescribing the drug to 25,000 new patients in the US per week, compared with 5,000 in December.

We are not surprised about the pricing pressure on the drug given the rising competitive intensity from Eli Lilly, and we expect that pricing will continue to work its way down. However, we believe this will remain a two-horse race over the coming years, the addressable market remains enormous and supply remains constrained. 

 

Artisan Partners Growth Team manages portfolios that held securities issued by Novo Nordisk as of 3/31/24.  Portfolio securities are subject to change.