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Growth Team Weekly Investment Insights

1) Conflicting Labor Market Results

Last week, we received two labor market data points that were largely contradictory.

Tuesday, June 4:

• First up was the US Bureau of Labor Statistics Job Openings and Labor Turnover Survey. It showed a decline to 8.1 million in April from a downwardly revised 8.4 million in March. The April figure was the lowest since February 2021. And the ratio of unfilled jobs to unemployed people fell to 1.2, the lowest in nearly three years.

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Bureau of Labor Statistics, as of April 30, 2024.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Friday, June 7:

• However, Friday’s employment report called these results into question, as 272,000 jobs were added to US payrolls in May, well above the consensus forecast of a gain of 180,000. Wage growth was also stronger than expected, rising 0.4% month over month and 4.1% year over year. At the same time, the unemployment rate rose to 4.0% from 3.9%.

 

 

 

Source: Bureau of Labor Statistics, as of April 30, 2024.

Yields rallied, and the dollar strengthened on the news as the market reduced rate cut expectations for later in the year.

2) A New Sheriff in Town: Semiconductors Overtake Software in Russell 1000® Index

In September 2018, the software industry took the crown from banks as the largest industry weighting in the Russell 1000® Index (banks surpassed oil, gas, and consumable fuels in September 2016).

As of the end of May, there is a new leader. For the first time, chip stocks now account for the heaviest weighting in the index as many large enterprise software companies struggle with customers prioritizing generative artificial intelligence (AI) investments (chips and servers) over software as a service products.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: FactSet, as of May 31, 2024.

The semiconductor industry grew from 5.5% in April 2023 to 10.3% as of the end of May 2024. Most of this increase has been NVIDIA's growth from 1.7% to 5.4%.

 

 

 

 

Source: FactSet, as of May 31, 2024.

3) “The Most Exciting Moment Since the Arrival of WiFi”

Speaking of semiconductors, the annual Computex conference wrapped up last week. This event is in Taiwan and has been a venue for chief executives of leading semiconductor companies to give speeches featuring the latest and greatest AI-related technology.

According to the Financial Times, a theme during this year's trade show was personal computers (PCs). Notebook and desktop computers embedded with specialized silicon are expected to run AI applications such as digital assistants and software that can generate everything from code to videos on the device itself, rather than relying on cloud services.

• “When I think about the PC market, this is the most exciting moment in 25 years since the arrival of WiFi,” said Intel CEO Pat Gelsinger
• Qualcomm chief Cristiano Amon went further, saying the PC industry was being reborn, with the AI PC the most important development since Microsoft’s Windows 95 operating system.

AMD unveiled two new processors for AI PCs, which will start shipping in volume at the end of next month. Intel said it expected its Lunar Lake processor, a flagship chip targeting AI PCs, to ship in the third quarter, in time for the holiday buying season.

Morgan Stanley analysts said AI PCs would be key contributors to the next leg of PC market growth as penetration rises from 2% in 2024 to 65% in 2028 and as companies opt for PCs that run AI applications on the device as a cheaper, more secure and flexible option than in the cloud.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4) ECB Follows Through with Rate Cut Despite Raising Inflation and Growth Estimates

While markets were quick to scale back anticipated US Federal Reserve rate cuts, the European Central Bank delivered a 0.25% rate cut, to 3.75%. However, the ECB raised its 2024 inflation forecast to 2.5% from 2.3% (while forecasting 2.2% in 2025 and 1.9% in 2026), and also raised its euro zone growth outlook to 0.9% from 0.6%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The central bank’s observations that domestic price pressures remain strong as wage growth is elevated and inflation is likely to stay above target into next year suggest that further cuts are unlikely to come in quick succession.

5) Record Airline Activity and an Aging Airline Fleet Could be a Maintenance Sweet Spot   

Just a few years after the COVID-19 pandemic, the airline industry has fully recovered. According to the International Air Transport Association’s latest estimate, industry revenues are expected to hit a new record of almost $1 trillion this year, as almost five billion passengers are expected for 2024, exceeding the 2019 passenger number by more than 400 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production headwinds over the past few years, combined with rising demand, have created an attractive setup for companies operating in the aftermarket parts and maintenance market. A significant portion of the global commercial aircraft fleet is aging, and airlines are increasingly looking for ways to maintain these older planes efficiently and cost-effectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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