Hype versus Reality

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The title of this summer update applies to how the financial markets have started 2023 and my investigation into AI (artificial intelligence, smart software you can talk with).  The good news is the financial markets have performed well year to date (YTD), much better than all the hype of recession, inflation and economic woes.  The bad news, at least for me, was the less than stellar performance of AI when I needed it most: helping me to write updates like this!  Trying to respect your summertime, I will keep this quarterly update brief.

Despite most of the gloomy economic news to start this year, the financial markets have blissfully behaved as if they are either Teflon coated or projecting a higher level of confidence in our maturing economy.  The US stock market appreciation YTD has been strong but uneven, meaning that market performance has been strongly influenced by just a handful of stocks.  The good news is you own many of these companies, either individually or through mutual funds.  To demonstrate, through 06/30/23, the S&P was up 16.9%, led by strong returns from mega tech names like Microsoft, Amazon, Nvidia, Alphabet, Meta, Apple and Tesla.  The Dow, which only owns two of those names, was up only 4.9% for the same period.  Meanwhile, the NASDAQ, which owns all seven of those stocks at larger percentages, was up a whopping 32.3%.  Small-cap stocks were up 8.1% and foreign stocks had a strong first half of 2023, up 12.1%.  Fixed income (bond) returns were up a more modest 2.1% in the first half of this year, but that is respectable compared to the negative returns of 2022.

RELATED: Read these 5 tips for a stronger financial strategy in 2023.

The hype on AI was that it was going to either eliminate most of our jobs (doomsday point of view) or the technology was going to make all of us so much more productive that it would enhance our lives beyond imagination.  There are many AI sites you can find through an Internet search.  I found one and put it through some rigorous tests a few weeks ago and was pleasantly surprised at the speed, ease of language and content.  However, when I needed it most, to draft a few paragraphs for me to summarize how the financial markets have started 2023, it failed miserably.  Even though I asked very specific questions with detailed parameters, it failed to provide any useful data and the answer it gave was based on 2022.  So, AI has not replaced me (yet), and it did not help me become more productive since I had to type out my own market summary.

Keeping it simple and brief, I feel good about our economy for the foreseeable future.  Inflation is easing, the Fed is pausing/slowing and the economy, especially employment, seems to be adjusting to the new normal of higher interest rates.  Businesses are lowering expectations and the financial markets are optimistic, but not valued at bullish extremes from a historical point of view.  As I write this, the stock markets are taking a typical summer pause in early July, but that is based on the good news that the job market is still strong.  Let’s hope the financial markets ignore all the market hype and follow the old market adage that stock markets “climb a wall of worry.”  We will see where we are in the fall.  Enjoy your summer!

If you have questions about this information or your overall financial plan, call us today at 412-630-6000. Our experienced financial advisors are here to help.

Mike Kauffelt
Co-CIO, Bill Few Associates, Inc.

P.S.  For those of you who read the spring commentary, it had a side theme about the bunnies attacking my yard.  Many of you responded with sympathy for the bunnies and several “natural” ways to deal with them.  As an update, I have given up and the bunnies have won.  I have decided to capitalize on their destruction by writing a children’s book called How the Bunnies Conquered Scenery Ridge Drive.  I will have one of my artistic daughters illustrate the book and, hopefully, the sales proceeds will more than offset the yard damage.  Rest assured, no bunnies have been hurt in the battle for Scenery Ridge Drive this year.

Financial data from Bloomberg, Franklin Templeton and The Wall Street Journal

Contact Michael K. Kauffelt, II, CFA

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