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Growth Team Weekly Investment Insights

In this week's post, we highlight inflation and retail sales results, market performance, Starbucks's new CEO, and a key milestone hit by AstraZeneca. 

Well, so much for those recession worries. Last week, multiple data points pointed to a resilient US economy, which led to equity strength and fading Fed rate cut expectations.  

1) Falling Inflation Despite Shelter Strength

US inflation fell to 2.9% YoY in July (the first time below 3% since March 2021). While inflationary pressures continue to trend in the right direction, the shelter reading remains stubbornly high. The YoY shelter reading has been working its way down, but it remains at 5.0% and is a large driver of the headline consumer price index (CPI). In fact, if you removed shelter, CPI would have been <2% YoY in 11 of the last 14 months.

 

 

 

 

 

 

 

 

 

 

 

 

 

While YoY shelter readings have continued to trend downwards, the July MoM reading accelerated.

 

 

 

 

 

 

 

 

 

 

 

 

 

2) Retail Sales Accelerate, Walmart Beats but Home Depot Misses

This Financial Times article highlights July retail sales, which rose 1.1% YoY. This was versus expectations of a 0.3% gain and a significant increase from June’s 0.3% decline! Much of the volatility in the last two monthly readings was in autos, where spending dropped 3.4% in June just to recover 3.6% in July. 

 

 

 

 

 

 

 

 

 

 

 

 

 

This was followed up by Walmart’s strong earnings results.

• The company reported a 4.2% YoY increase in same-store sales at its main US stores and raised its annual profit forecast. “So far, we aren’t experiencing a weaker consumer overall,” Walmart chief executive Doug McMillon told analysts after quarterly results.
• The company said that in the second quarter, its grocery and merchandise store chain gained market share in the US “across income cohorts primarily driven by upper-income households” attracted by its “value-convenience proposition.”
• Walmart has been among the retailers boosting discounts to draw shoppers to stores. In the second quarter, it offered temporary price cuts on 7,200 items.

However, Home Depot’s results went against the relatively positive retail picture.

• The home hardware retailer said comparable sales would fall by 3%–4% this year, steeper than its previous forecast of a 1% decline.
• The company’s CFO said that many Home Depot customers are homeowners, and they often finance large projects with debt. Since mid-2023, they have been holding back with a deferral mindset, waiting for the cost of borrowing to go down.
• The company also pointed to the frozen housing market, given many big repairs occur when homes change hands. The decrease in turnover has “taken out what’s likely over $10bn in demand in our market,” said the CFO.

3) Rate Cut Expectations Swing Back to 25bps and Stocks Rally

Fading investor concerns led to a very strong bounceback in equity returns. The S&P® 500 Index was approaching correction territory a couple of weeks ago but is now less than 2% from its all-time highs.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rates also increased as markets quickly reduced expectations for a 50bps rate cut at the September meeting. The current implied probability for a 50bps cut is 26%, compared to 54% one week prior.

 

 

 

 

 

 

 

 

4) The $20bn Man

Last week, Chipotle announced that its CEO, Brian Niccol, was leaving to join Starbucks. This Financial Times article outlines the agreement, including Starbucks awarding its new CEO a cash and stock package potentially worth more than $100mn. This is one of the largest hiring packages in US corporate history and 83% above the median target at other S&P 500® restaurant groups, such as Chipotle, Darden, Yum Brands and McDonald’s, according to Equilar.

Brian Niccol joined Chipotle in 2018, and the stock has risen over 800% since then. The market expects this executive change will solve many of Starbucks’ recent struggles, and its market cap has increased by ~$20bn since the announcement!

 

 

 

 

 

 

 

 

 

 

 

 

 

5) AstraZeneca, Welcome to the £200bn Club

After a strong performance run this year, AstraZeneca has become the only current UK-listed company in the FTSE 100 to reach a £200bn market cap.

Since the arrival of CEO Pascal Soriot 12 years ago, the company has transformed from a legacy respiratory, primary-care company into an oncology powerhouse. Central to its growth plans has been delivering on its scientific advances in treating lung, breast and other forms of cancer. In its most recent investor presentation, the company highlighted that 40 phase III trial results will likely be announced by the end of 2025.

 

 

 

 

 

 

 

 

 

 

 

 

 

Artisan Partners Growth Team manages portfolios that held securities issued by Chipotle and AstraZeneca as of 6/30/24.  Portfolio securities are subject to change.