Retrospect Volume V

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MID-YEAR MARKET RECAP

As we continue

through 2024, we’d like

to reflect on the

events, trends, and

other developments

thus far that defined

our economics, policy,

business, and culture,

and look at what the

rest of the year has in

store.

Casey, Mark, et al. “Separating AI Hype from Investment Opportunity.” CapitalGroup NACG, 3 May 2024, www.capitalgroup.com/ria/insights/articles/separating-ai-hype-investment-opportunity.html.

Aliaga-Díaz, Roger. “Why We Expect the Fed to Remain Cautious.” Vanguard, 13 Mar. 2024, advisors.vanguard.com/insights/article/why-we-expect-the-fed-to-remain-cautious.

2 RETROSPECT

It’s natural for investors to look for a connection between who wins the White House

and how financial markets will respond. However, the outcome of an election is only

one of many inputs to the market. The economic data for nearly 100 years of U.S.

presidential terms shows a consistent upward march for U.S. equities regardless of

the administration in place. This is an important lesson on the benefits of a long-

term investment approach.

Election Season

The AI hype cycle has continued to gain fuel

as businesses and individuals quickly adopt

AI tools. OpenAI, the developer of ChatGPT,

has reported over 100 million weekly users

by the start of 2024, including two million

developers and over 90% of Fortune 500

companies. Investor excitement has

turbocharged share prices for the most

visible enablers of generative AI, including

NVIDIA, Meta Platforms, and Microsoft, an

investor in OpenAI.

Companies have been experimentally

implementing AI features to improve

efficiency and productivity. From scientific

and medical discovery, product

development, industrial and robotic

automation, and IT services, businesses are

taking advantage of AI capabilities.

Rather than focusing on attention-grabbing

headlines about massive job loss or the rise

of sentient robots, notice the declining cost

of AI adoption, the advancement in

generative models, and identifying early

adopters that use the technology to gain a

competitive advantage.

As of mid-April, the latest inflation and

labor market data imply that U.S.

production of goods and services remains

healthy and underscore our view that

continued economic strength might

prevent the Federal Reserve from cutting

interest rates in 2024.

Faced with persistent inflation above its

2.00% target and the risk of financial

conditions easing too rapidly, the Fed will

move cautiously and likely maintain its

federal funds rate target around its

current range of 5.25% to 5.50% for the rest

of 2024.

Given policy interest rates aimed at

subduing inflation by restricting economic

activity, we would not have expected GDP

growth as robust as 3.0% in 2023. We

foresee economic growth around 2.0% for

2024 and a year-end unemployment rate

around 4.0%.

Artificial Intelligence Hype

Economy & Markets

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