All of you Art History majors – or fans of the movie Ferris Bueller’s Day Off – might remember seeing the famous painting A Sunday on La Grande Jatte, composed by Georges Seurat in the 1880s. This masterwork is likely the best known example of ‘Pointillism’ – a technique in which small, distinct dots of color are applied in patterns to form an image. Taking more than two years to complete, Seurat’s painting, whose setting is a small island on the river Seine, is estimated to contain approximately 220,000 dots.
Seurat’s masterpiece is the inspiration behind our approach to navigating 1Q 2024 earnings season. Let’s imagine each company’s performance can be summarized by a few quotes, where a series of these summaries establish a theme, and a set of themes express the broader picture of what we see across the corporate earnings landscape. Building upon this analogy, this month’s Equity Beat contains dozens of “dots”, grouped into four distinct themes that attempt to express our earnings takeaways. From a distance, there are a few pockets of strength across the corporate landscape that carry the day. However, excluding these areas (namely data center/AI infrastructure, digital advertising and aerospace/defense), the outlook is relatively mixed. In my opinion, for the narrow market leadership trend of recent years to dissipate, investors need greater evidence of broader improvement across economic sectors. It does not seem as though we’re quite there yet.
Theme #1: Industrial markets are generally weak, with the exception of data center infrastructure and aerospace/defense.
Theme #2: The “Consumer” is mixed; the aspirational/lower income consumer is feeling some pain. The higher income cohort’s spend remains healthy.
Theme #3: Digital advertisers are seeing strong demand thanks to Gen AI (better engagement and ad relevancy).
Theme #4: Capital spending growth acceleration for Gen AI infrastructure is benefiting semiconductor companies.
Thanks for reading, and remember to never skip a Beat Eric
1FactSet
2The Art Institute of Chicago
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Terms and Definitions:
Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.