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ResearchThree Things (1/31)

Three Things (1/31)

Jan 31, 2024

Big Tech earnings

Microsoft and Google, two companies that have led the stock market’s moves higher, reported earnings after the bell on Tuesday. Alphabet reported better-than-expected revenue and profit for the fourth quarter, but ad revenue was weaker than analysts expected – the biggest negative next to the ad revenue miss is capex coming in 12% above consensus. Microsoft beat on the top and bottom lines as Azure cloud growth was stronger than expected.

For about a year, investors have bid up mega cap tech shares on the theory that their exposure to artificial intelligence will usher in a new era of elevated growth and efficiency. A year into the super cycle, it’s now time for these companies to prove it. Microsoft’s Azure revenue growth was boosted an estimated 6% by artificial intelligence, a strong sign that the investment is translating to growth.

Labor data

Workers called it quits less frequently in 2023 as Americans quitting jobs declined by 12% compared to the year prior, the Labor Department said Tuesday. In December alone, quits fell to the lowest monthly level in nearly three years, after adjusting for seasonal fluctuations. The trend is a dramatic divergence from the pandemic's "Great Resignation" when resignations surged and companies faced labor shortages.

Most traditionally, the reports signal a slowing confidence in the labor market. The declining quit rate should limit how fast wages grow, as companies are less pressured to attract and keep workers, which may calm inflation numbers even further.

Sovereign wealth report

Norway’s giant sovereign wealth fund on Tuesday reported record profit of 2.22 trillion kroner ($213 billion) in 2023. The so-called Government Pension Fund Global, one of the world’s largest investors, said the result marked its highest return in kroner ever, with the fund’s return on investment last year coming in at 16.1% for the year. It follows a record loss of -14.1% for the whole of 2022, which the fund attributed to “very unusual” market conditions at the time.

For some perspective, the S&P 500 returned ~26% in 2023 so the performance is revealing of the “risk adjusted returns” that pension funds pursue. Given that a large percentage of assets are likely allocated towards income generating investments (bonds, credit, real estate, etc.), it makes sense that the performance is muted compared to the S&P. Norway’s sovereign wealth fund wasn’t alone in impressive performance but it’s a manager’s ability to stack multiple years of winning data that differentiates them from the pack.


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As of writing, MSFT and GOOGL are holdings in Titan's Flagship strategy.

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