ResearchThree Things (3/18)

Three Things (3/18)

Mar 18, 2024

More airline troubles

US airline stocks are heading for the worst two-week losing streak since October as volatile fuel prices and the mounting troubles at Boeing continue to hurt the industry. The decline follows another report of a United Airlines flight being forced to conduct an emergency landing after losing a panel during a flight. Commentary from the industry’s latest conference on Tuesday centered around capacity reductions and cost challenges.

Normalizing demand after a surge in lockdown-driven “revenge” travel will make it difficult for these airline companies to continue hiking fares to cover the increased costs. This in combination with mandates by regulators to cap output of Boeing’s popular 737 Max model are creating a perfect storm requiring airlines to cut back on the number of routes they fly. The unfortunate downstream impacts of being beholden to duopolistic power are impacting the airline’s bottom lines and likely consumers, too.

Taiwan Semi surges higher

Shares of Taiwan Semiconductor Manufacturing (TSMC) have surged more than 110% since October 2022 amid the global investor mania over artificial intelligence. TSMC said its AI revenue is growing ~50% annually and should comprise somewhere in the “high-teens” by 2027. The company is building plants in the US, Japan and Germany as it races to supply needs for AI chips and data centers around the globe.

What’s interesting about the recent run higher is that AI has been the center of the thesis yet revenues related to the technology accounted for just 6% of TSMC’s total revenue last year. The move off its lows suggests that the market has been pricing in a big jump in that figure on the promise of an explosion in demand. Extensive geopolitical risks and a sky-high valuation likely put TSMC in the ‘too hard’ bucket for the time being.

Fed decisions

The Federal Reserve meets this week to decide whether, when and by how much it should cut rates later this year. A key question it must answer: Just how tight is its monetary policy? Many experts expect the Fed to hold rates steady at a target of 5.25% - 5.50%, as the Fed still waits for inflation to ease a bit more.

As we entered the year, some market participants thought that this March meeting may provide the first rate cut of the year. That reality, thanks to a difficult inflationary environment, doesn’t seem to be coming true. There are a bunch of mixed signals throughout the economy: real estate and home builders, consumer spending, and job growth, among others. The challenge of unscrambling conflicting signals explains why officials are focusing on what happens with inflation.


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