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Growth Team Weekly Investment Insights

In this week's blog post, we cover a series of economic data (inflation and retail sales), the S&P 500® index's new high, Tesla's exposure to potential regulation changes, U.S. vs. non-U.S. equities, the performance of nuclear stocks and a look at where some key COVID-19 beneficiaries are trading today.  

Macro Overview

Last week was macro-heavy, including inflation and retail sales data.

From an inflation perspective, everything was pretty much in line with expectations. Headline and core consumer price index (CPI) measures matched consensus estimates for both the month-over-month and year-over-year measures.

 

 

 

 

 

Results continued to show elevated services inflation, driven by strength in shelter prices. The optimistic view is data will continue to trend toward the Fed’s 2% target if shelter prices cool down (CPI ex-shelter is 1.3%). However, investors are now worried that the goods side of the equation may be at risk if tariffs cause upward price pressures.   

 

 

 

 

 

 

 

 

 

 

 

 

US retail sales rose 0.4% month over month in October, and September sales were upwardly revised. The latest result exceeded expectations of 0.3% growth.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With continued evidence of economic strength and no positive inflation surprise, future Fed policy remains in question.

Tesla Propels S&P® 500 Index to 6,000

On Monday (11/11), the S&P 500® Index crossed the 6,000 level for the first time, just nine months after crossing the 5,000 threshold.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Looking at the Magnificent Seven stocks since the election result, there have not been many fireworks outside of Tesla, which is up 28% as of Friday.

 

 

 

 

 

 

 

 

 

 

 

 

 

News swirled throughout the week about the potential for President-elect Donald Trump’s administration to pull the plug on electric vehicle (EV) tax credits. Will this help or hurt Tesla? Well, from a headline EV demand perspective, the $7,500 discount on new EVs has certainly helped fuel demand in the US. However, this would likely benefit Tesla’s market position, given that much of its competition is already struggling to manufacture EVs at a profit.

This may be why the company has added more market value than its peers combined in recent weeks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Widening US vs. Non-US Performance and Valuation Gap

The Trump bump for US markets has widened the US versus non-US performance gap. After performing in line for much of 2022 and 2023, the MSCI USA Index is now leading the MSCI ACWI ex USA Index by nearly 30% over the trailing three years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Much of this has been driven by exceptional fundamentals. However, there has been a valuation tailwind as well. The MSCI USA Index trades at a 21.6X forward (P/E) ratio versus 13.3X for the MSCI AC World ex USA Index. That is a 62% higher valuation versus the 10-year average of 37%.

Much of this is obviously driven by US mega-cap technology platforms that have enjoyed strong growth, massive competitive moats and attractive margin profiles. It is reasonable to assume that companies with those characteristics deserve higher multiples, but time will tell if this dispersion is sustainable or not. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This period of outperformance has propelled the US weight within the MSCI AC World Index to new heights, largely at the expense of Europe. A decade ago, 56% of the index weighting was in the Americas (Canada was ~3% of that), and it has since grown to nearly 70% today! Meanwhile, Europe’s 22% weighting 10 years ago is down to 13%.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NuScale Power Shares Have Gone Nuclear!  

The third-best performer in the Russell 2000® index this year (up nearly 600%) is a company involved in constructing small modular reactors (SMRs).

Shares in nuclear energy companies have surged since Trump's election victory. However, they were already experiencing an incredibly strong year. That was especially the case after Amazon and Google inked power supply deals to deploy the first SMRs in the US to provide low-carbon electricity to power their energy-hungry artificial intelligence data centers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Until recently, investors have been wary about financing the rollout of small reactors, which are touted by proponents as smaller, safer and more efficient than large-scale nuclear reactors. Small reactor developers say they are confident the tech giants’ support is the game changer they need. “The tech community has placed value on not just carbon-free benefits, but also availability and reliability,” said Clayton Scott, chief commercial officer at NuScale. “The momentum is here.”

COVID-19 Beneficiaries All-Time Highs

Last week, we received earnings reports from Shopify and Sea. The two companies experienced a meteoric rise during COVID-19 due to their e-commerce exposure and subsequent reversal as economies opened up and valuations compressed amid the Fed’s rate hiking campaign.

Both companies reported strong results, and shares rallied, contributing to each company’s recent momentum. Looking back to the beginning of 2023, Shopify has returned over 300%, and Sea has returned nearly 200%. However, both companies are still well below their all-time highs, highlighting just how abnormal that 2020/2021 period was.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For example, Sea is expected to generate $16.5 billion in sales in 2024. That is more than 60% higher than the $10 billion it generated in 2021. However, the company is still down 70% from its all-time high!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Artisan Growth Team manages portfolios which held securities issued by Amazon, Alphabet, Microsoft, Apple, Shopify and Sea of 9/30/24.  Portfolio securities are subject to change.

Price-to-Earnings (P/E) is a valuation ratio of a company's current share price compared to its per-share earnings.