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Growth Team Weekly Investment Insights
After a few weeks off due to vacation and working through the quarter-end rush, we are back.
1) Deflation
Starting at a higher level, there has been a lot of data released over the past few weeks that point to a macro environment of slowing inflation and a slowing (albeit still strong) economy.
The June consumer price index (CPI) reading showed a monthly decrease of 0.1%. The last time the US had a deflationary CPI reading was July 2022. This follows a 0.0% reading in May.
One of the driving factors of the recent fall is shelter inflation, which registered a 0.2% MoM reading (the lowest since August 2021). This has been largely expected due to its lag compared to real-time estimates from housing companies like Zillow.
2) The Great Rotation
This kicked off a historic market rotation. Rates fell as the market priced in a September Fed rate cut, and smaller, cyclical and higher-debt companies all rallied. Looking at rolling five-business-day returns of the Russell 2000® Index versus the NASDAQ Composite Index, we just experienced a period of ~13% outperformance. This was the biggest disparity (in either direction) of the last 20+ years!
If we dissect the Russell 1000® Index returns since CPI day on July 11, cyclical sectors, along with smaller and more indebted companies, outperformed, as fears of future refinancing pressures eased.
3) Semiconductors: The Perfect Storm?
Semiconductors have hit the perforce storm. As we highlighted earlier, the market has at least temporarily rotated away from growth companies in the technology sector. At the same time, these companies have been pressured by rhetoric from both sides of the political aisle. First, Donald Trump commented that “Taiwan should pay us for defense,” and second, President Joe Biden’s administration indicated that it is considering using the most severe trade restrictions available against China.
The industry group went from outperforming the broader index by >500bps on July 10 to underperforming by -600bps, an 11% swing in relative returns in just seven trading days.
4) Netflix Rakes in Subscribers, Earnings and Emmy Nominations
Netflix continued its impressive run of adding new users, reporting eight million new subscribers in its most recent earnings release. However, the company warned that its next reported new subscriber number would likely be lower than a year ago, given the challenging comparison versus when its password-sharing crackdown went into full effect.
Netflix’s fundamental results remain encouraging, and the future continues to look bright, considering the benign competitive environment and its production of quality content. This year, it surpassed HBO for the most Emmy nominations.
5) Big US Banks Warn of Financial Stress Among Lower-Income Customers
This Financial Times article summarizes some of the findings from the latest batch of financial results from the big US banks. One common theme was evidence of stress among lower-income consumers.
Artisan Partners Growth Team manages portfolios that held securities issued by Netflix as of 6/30/24. Portfolio securities are subject to change.
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