The AI Craze
Second Quarter Market Summary
The second quarter of 2024 brought in mixed results. While indexes were up, the average underlying stock within those indexes was down in the quarter. A phenomenon that rarely occurs and was fueled by mega-cap stocks with artificial intelligence exposure.
US stocks finished Q2 up over 4%, continuing the strong run for the first half of 2024. The so-called “Magnificent Seven” drove the bulk of the returns, while average stocks, measured by the equal-weighted index, were down -2.6%. The Magnificent Seven (large beneficiaries of the AI craze) stocks were up nearly 17% in Q2. Quite the divergence.
The 10-year Treasury yield was relatively flat over the quarter. Starting the quarter at 4.33% and ending the quarter slightly up to 4.36%, resulting in the Bloomberg US Aggregate Index being flat for the quarter.
Below is a table highlighting various market index returns over the past 3, 12, and 36 months:
Commentary
The second quarter showed that corporate America is in a race to embrace AI (artificial intelligence). Whether on news headlines, blog posts, social media, or earnings calls, companies are analyzing how best to incorporate AI into their business model. How it may impact their customers, employees, and future growth are at the forefront of many businesses. The mentioning of AI in S&P 500 companies’ quarterly earnings calls has nearly tripled over the last couple of years. We are in the infancy stages of AI and its exposure will likely flow through just about all businesses in all types of industries.
Source: FactSet
While AI led the headlines for the majority of the quarter, we still received encouraging economic data. Unemployment held steady at 4.1% through June, inflation figures eased, and GDP is expected to be in line with its 2% long-term trend. There were no rate cuts by the Federal Reserve in Q2 and markets are now pricing in only two rate cuts from the Fed in 2024. Given the high degree of uncertainty around monetary policy, our belief is that rates will continue to be higher for longer.
Refresh and De-stress
With fears of economic slowdowns, foreign conflicts, political tensions, market volatility, inflation, career, family, and the usual day to day stressors, it often makes sense to take a pause in life. Self-reflect, focus, and take control of what you can control. Most commonly, take control of financial stress. Nearly two-thirds of Americans reported feeling “consumed” by their worries about money. Here are a few quick steps to help alleviate financial stress.
- Start by self-reflecting and identify what is causing your concerns and how you got to where you are today. Once those have been identified, it’s time to make a shift in your financial mindset and focus on the future. Instead of focusing on shortcomings and fears, look to the future and the positive outcomes you desire.
- Five steps that could help you take control once you have taken the initiative above:
- Identify and write down your goals
- Write down whatever is most important to you, with a specific timeframe, dollar figure, and priority. This could be to buy a home, start a business, plan to retire without fear, or paying off debt - be very specific.
- Review the numbers
- See if your current spending allows for savings towards these goals. If not, identify the tradeoffs or areas where compromises can be made to create flexibility to work towards your goals.
- Prioritize saving
- Pay yourself first. Identify how much you need to save in order to meet your goals and make it a top priority.
- Auto Pilot
- Make it automatic! Creating a path of least resistance will greatly improve your odds for success and positive behaviors. Put your savings or bill paying on auto-pay or auto-save. Take the thinking and need for action out of the question.
- Continue to learn
- Continue to broaden your financial education through reputable podcasts, articles, books, a reliable friend, or entrusting the expertise of a financial professional. Don’t always depend on social media influences either. Doing so will allow you compound making good decisions, ultimately lead to greater successes, and ease your financial stress.
- Always remember to be clear and realistic about your goals. Understand the behaviors or habits that could be in your way. Take action. You can read more in the link below.
Source: 5 Steps to Help Lower Your Financial Stress
There will always be concerns and worries when it comes to finances. Gratefully, we are here to be a listening ear, a helping hand, and a trusted advisor for all of life’s ups and downs.
As we regularly share, we encourage all clients to remain persistent, invested, diversified, disciplined, and focused on the long haul!
"An investment in knowledge pays the best interest." — Benjamin Franklin
Stay cool and enjoy your summer!
JR Geld, CFA, CFP® HWA Financial Group
jgeld@hwafinancialgroup.com 3448 Ellicott Center Dr., STE 101
Ellicott City, MD 21043
Philip E. Huber, Jr, CPA, CFP® 410-696-4025
phuber@hwafinancialgroup.com
Danny Pereira, CFP®
dpereira@hwafinancialgroup.com