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Growth Team Weekly Investment Insights
In this week’s post, we highlight Jay Powell’s recent comments, US rate cut expectations and the falling US dollar, health care’s bright outlook, NVIDIA’s earnings results, and record free cash flow generation by defense companies.
Fed Signals Cuts, Rates Fall and Dollar Weakens
During his highly anticipated speech in Jackson Hole, Jay Powell said, “The time has come for policy to adjust.” Powell said the Fed would do “everything we can to support a strong labor market as we make further progress towards price stability.” He warned that “the upside risks to inflation have diminished, and the downside risks to employment have increased.”
At the time of writing (August 30), the market is leaning towards 100bps of rate cuts before the end of the year: 25bps in September, 50bps in November and 25bps in December.
This has led to dollar weakness, which has been a tailwind for US investors holding non-US equities. Looking at the QTD returns of the MSCI AC World Index by region, dollar weakness has boosted each return.
The most notable performance divergences have been within Europe and the Pacific Basin. Among the top six non-US country weightings within the index, Japan and Switzerland have been the notable standouts.
US equity markets rallied, continuing a trend that has been ongoing for much of Q3: market broadening. Small caps and the S&P 500® Equal Weight Index expanded their lead over the S&P 500® Index and NASDAQ Composite® Index over the week.
Are There Better Days Ahead for Health Care?
Speaking of broadening markets, the health care sector’s disappointing performance for the past few years may be ready to turn, if earnings are an indication of future performance. The health care sector within the S&P 500® Index is expected to post 21% YoY EPS growth in 2025, the highest of all 11 sectors.
Staying within the sector, the latest GLP-1 breakthrough comes from Eli Lilly. As highlighted in this Wall Street Journal article, the company reported weekly injections of Zepbound for more than three years reduced the risk of Type 2 diabetes by 94%.
NVIDIA: The Difference Between Consensus and Sentiment
NVIDIAs revenue more than doubled in the past quarter to continue its blockbuster growth, but its shares fell as it failed to beat the market’s lofty expectations. Revenue in the three months to July 28 was $30bn, up 122% from a year ago and ahead of analysts’ forecasts of $28.7bn. In the third quarter, NVIDIA is expecting $32.5bn in revenue, plus or minus 2%, just ahead of analysts’ consensus expectations.
The results sent shares falling. Despite weakness in one of the largest index constituents, the overall market ended up in positive territory. There have been 416 trading days since the beginning of 2023 (to 8/30/2024). Of those, only 60 were days when NVIDIA declined, but the market remained up.
Defense Companies Rake in Record Cash
This Financial Times article highlights an analysis done by Vertical Research. It found the world’s largest aerospace and defense companies are set to rake in record cash levels over the next three years as they benefit from a surge in government orders for new weapons amid rising geopolitical tensions.
Artisan Partners Growth Team manages portfolios that held securities issued by BAE Systems as of 6/30/24. Portfolio securities are subject to change.
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