Listen to our Chief Investment Officer, Oliver Gooden’s, take on market conditions here.
The first half of 2023 stands in stark difference to the start of 2022. Inflation is cooling and investment markets are seeing prices rise.
Many traditional economic indicators are pointing to an economic slowdown and possible recession. Typically, we see factors that are experienced currently, like inflation and higher borrowing costs, precede a recession. However, we are experiencing one of the strongest job markets in a generation. There are nearly two job openings for each job seeker. With employment strong, it is much harder to slow the economy down, eventually leading to a recession. Why? Consumer spending is the largest part of the US economy. With competition for labor, we are seeing wages rise, putting more money back into the economy.
All of this has made it very hard for the federal reserve to rein in inflation. Recent stats are still showing the year-over-year inflation rate in the 4% area. This is a welcome reprieve from the 8-9% inflation rate of this time a year ago. However, it is still above the targeted 2-3%. One of the potential explanations is that higher interest rates actually push costs higher in some segments. While attempting to cool the economy to slow inflation, we are causing inflation. Housing is a prime example of this. Higher borrowing costs cause new mortgage borrowers to have higher payments than people that took a loan previously.
Stock markets have had a positive reaction to these developments, with prices surging in the first half of 2023. Concerns about inflation and interest rates that caused share prices to fall in 2022 seem to have been overdone. Both US and International Stock markets saw prices appreciate. Within the US, larger companies generally grew faster than smaller companies. Even within the S&P 500, a disproportionate amount of the gain came from a small number of mega-cap stocks that are on the leading edge of Alternative Intelligence.
So, should we be “all-in” on A.I.? Probably not. Like any new tech, it could be transformative, but the time it takes to be profitable is unknown, and it could be over-hyped. Many of these same stocks saw prices down in 2022. Staying with a portfolio of diversified investments, including businesses that are involved in A.I., is prudent.
We cannot control the direction of stock markets, nor the hottest sectors of them. What we can do, is ensure that financial plans are in good order and our investment strategies match.
