Financially Speaking
Summer, whether you are in school or have kids in school, almost always means vacation time. Trips to the beach, trips to visit family or friends, trips in the US or abroad are often on our agenda. Erik, Sean and I are avid travelers. We like the planning process almost as much as the trip itself. I have been known to spend hours researching ideas for a trip, reading online articles and blogs about where to go, what to see, restaurants to try etc., eventually coming up with an itinerary that seems to make sense.
We were discussing the current and future uses of AI in the office and Erik said that he has used Chat GPT to plan his last couple of trips. I decided to see what ChatGPT would come up with for my summer trip. It took me about 10 minutes to input basic information such as where I was going, how many people, how we like to travel and budget. In less than 30 seconds ChatGPT provided an itinerary for the trip! I have to admit, it was better than the one I had built and has made me decide that I can let go of the “fun” of planning future trips.
As the grandmother of the cutest baby ever (I am not at all biased), I have to give you a Donovan update. He is now at the age where he is laughing, making those wonderful baby noises, trying to cram his entire fist in his mouth and just being unbelievably adorable. Please indulge me again, as I share a few photos of him with you.
In this quarter’s newsletter, you will find an article that Erik found interesting about Artificial Intelligence, an article by Sean about the costs of raising a child, our Quarterly Market Update and some photos from our Client Appreciation Night at the Key’s Stadium. It was wonderful seeing everyone, enjoying the game and especially the fireworks! Wishing you all a very fun filled summer.
ai wILL tRANSFORM THE gLOBAL eCONOMY. lET'S mAKE sURE IT BENEFITS hUMANITY.
PRESENTED BY ERIK
AI will affect almost 40 percent of jobs around the world, replacing some and complementing others. We need a careful balance of policies to tap its potential.
We are on the brink of a technological revolution that could jumpstart productivity, boost global growth and raise incomes around the world. Yet it could also replace jobs and deepen inequality.
The rapid advance of artificial intelligence has captivated the world, causing both excitement and alarm, and raising important questions about its potential impact on the global economy. The net effect is difficult to foresee, as AI will ripple through economies in complex ways. What we can say with some confidence is that we will need to come up with a set of policies to safely leverage the vast potential of AI for the benefit of humanity.
Reshaping the Nature of Work
In a new analysis, IMF staff examine the potential impact of AI on the global labor market. Many studies have predicted the likelihood that jobs will be replaced by AI. Yet we know that in many cases AI is likely to complement human work. The IMF analysis captures both these forces.
The findings are striking: almost 40 percent of global employment is exposed to AI. Historically, automation and information technology have tended to affect routine tasks, but one of the things that sets AI apart is its ability to impact high-skilled jobs. As a result, advanced economies face greater risks from AI—but also more opportunities to leverage its benefits—compared with emerging market and developing economies.
In advanced economies, about 60 percent of jobs may be impacted by AI. Roughly half the exposed jobs may benefit from AI integration, enhancing productivity. For the other half, AI applications may execute key tasks currently performed by humans, which could lower labor demand, leading to lower wages and reduced hiring. In the most extreme cases, some of these jobs may disappear.
In emerging markets and low-income countries, by contrast, AI exposure is expected to be 40 percent and 26 percent, respectively. These findings suggest emerging market and developing economies face fewer immediate disruptions from AI. At the same time, many of these countries don’t have the infrastructure or skilled workforces to harness the benefits of AI, raising the risk that over time the technology could worsen inequality among nations.
AI could also affect income and wealth inequality within countries. We may see polarization within income brackets, with workers who can harness AI seeing an increase in their productivity and wages—and those who cannot falling behind. Research shows that AI can help less experienced workers enhance their productivity more quickly. Younger workers may find it easier to exploit opportunities, while older workers could struggle to adapt.
The effect on labor income will largely depend on the extent to which AI will complement high-income workers. If AI significantly complements higher-income workers, it may lead to a disproportionate increase in their labor income. Moreover, gains in productivity from firms that adopt AI will likely boost capital returns, which may also favor high earners. Both of these phenomena could exacerbate inequality.
In most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers must proactively address to prevent the technology from further stoking social tensions. It is crucial for countries to establish comprehensive social safety nets and offer retraining programs for vulnerable workers. In doing so, we can make the AI transition more inclusive, protecting livelihoods and curbing inequality
An Inclusive AI-Driven World
AI is being integrated into businesses around the world at remarkable speed, underscoring the need for policymakers to act.
To help countries craft the right policies, the IMF has developed an AI Preparedness Index that measures readiness in areas such as digital infrastructure, human-capital and labor-market policies, innovation and economic integration, and regulation and ethics.
The human-capital and labor-market policies component, for example, evaluates elements such as years of schooling and job-market mobility, as well as the proportion of the population covered by social safety nets. The regulation and ethics component assesses the adaptability to digital business models of a country’s legal framework and the presence of strong governance for effective enforcement.
Using the index, IMF staff assessed the readiness of 125 countries. The findings reveal that wealthier economies, including advanced and some emerging market economies, tend to be better equipped for AI adoption than low-income countries, though there is considerable variation across countries. Singapore, the United States and Denmark posted the highest scores on the index, based on their strong results in all four categories tracked.
Guided by the insights from the AI Preparedness Index, advanced economies should prioritize AI innovation and integration while developing robust regulatory frameworks. This approach will cultivate a safe and responsible AI environment, helping maintain public trust. For emerging market and developing economies, the priority should be laying a strong foundation through investments in digital infrastructure and a digitally competent workforce.
The AI era is upon us, and it is still within our power to ensure it brings prosperity for all.
Article provided courtesy of Kristalina Georgieva – IMF Blog, January 2024
Cost to Raise a Child
Presented By Sean
If you’re reading this, you likely already know that Lucy and I welcomed our son Donovan into our family in February of this year. He has been an absolute delight – the pictures in Shabri’s introduction can’t really do him justice!
As much as Donovan has been a pleasure and a joy, the reality of raising a child in 2024 can feel daunting. If you have children, you know: kids are expensive. How expensive? Let’s take a look at the data.
The graphic above was created using USDA data from 2017. Accounting for inflation, the number looks more like $306,924 for a child born in November of 2023. The Brookings Institution conducted a study in 2022 that estimated the total cost of raising a child at $310,605. Note that the graphic and the numbers in this paragraph do not account for any costs related to college education.
The numbers might be off-putting for anyone reading who doesn’t have children, but has considered having them in the future. They might also result in a “duh” from those currently raising children.
As with most other financial decisions, planning ahead, and being thoughtful about trade-offs is important. Not all of the costs associated with raising a child happen all at once, and while parents don’t have total control over many of the factors related to raising a child, they can certainly exert influence over some of the financial factors.
Don’t go it alone! Tap into the Moore Wealth team if you could benefit from financial planning, whether you’re planning for kids, or for retirement.
Market Update - QUarter Ending June 30, 2024
Presented By Moore Wealth
Quick Hits
- June Rally caps Solid Quarter for Stocks
Stocks rose for the second consecutive month. - Bonds Up for the Month and Quarter
Falling interest rates in June supported bond returns during the month and quarter. - Inflation Slows
Inflation improved in May, with major inflation metrics showing slower price growth during the month. - Solid Economic Growth
Economic reports released in June showed signs of continued healthy growth. - Market Risks to Monitor
Markets face a variety of risks in the second half of the year. - Positive Outlook for the Second Half
Markets and the economy are set for continued growth.
June Rally Caps Solid Quarter for Stocks
Markets continued to rise, with all three major U.S. indices growing in June. The S&P 500 gained 3.59 percent in June and 4.28 percent for the quarter. The Dow Jones Industrial Average increased 1.23 percent in June, but weakness in April caused the index to fall 1.27 percent during the second quarter. The technology-heavy Nasdaq Composite led the way with a 6.03 percent gain in June and an 8.47 percent increase in the second quarter. Solid fundamentals and an improving economic backdrop helped support equity market returns in June.
According to Bloomberg Intelligence, as of June 28, with all companies having reported earnings, the average earnings growth rate for the S&P 500 in the first quarter was 7.9 percent. This is well above analyst estimates at the start of earnings season for a more modest 3.8 percent increase. The better-than-expected results were widespread; 10 of 11 sectors showed better earnings growth than anticipated. Looking ahead, analysts expect to see continued solid earnings growth through the rest of the year. Over the long run, fundamentals drive market performance, so the positive first half of the year was encouraging for investors.
Technical factors were also supportive during the month and quarter. All three major U.S. indices spent the entire quarter well above their respective 200-day moving averages. This is an important technical indicator because prolonged breaks above or below the 200-day moving average can indicate shifting investor sentiment for an index. Continued technical support and solid fundamentals helped drive the market rally in June.
Results were more mixed internationally as political concerns weighed on developed foreign stocks. The MSCI EAFE Index fell 1.61 percent in June, leading to a 0.42 percent decline for the second quarter. Emerging markets, on the other hand, were up 4.01 percent during the month and 5.12 percent for the quarter. Technical results were supportive for international stocks; both indices spent the entire quarter above their respective 200-day moving averages.
Bonds Up for the Month and Quarter
Fixed income markets also had a solid month, capping off a positive quarter. Investment-grade bond returns were supported by falling long-term interest rates. The 10-year US Treasury yield fell from 4.51 percent at the end of May to 4.36 percent by the end of June. The Bloomberg Aggregate Bond Index was up 0.95 percent for the month and 0.07 percent during the quarter.
High-yield bonds were also up for the month and quarter. The Bloomberg US Corporate High Yield Index gained 0.94 percent in June and 1.09 percent for the quarter. High-yield credit spreads ended the month virtually unchanged, signaling continued investor appetite for higher-yielding bonds despite relatively tight spreads on a historical basis.
Inflation Slows
The drop in interest rates in June was due in part to signs of continued progress in the fight against inflation. Year-over-year consumer price growth rose to a 2024 high of 3.5 percent in March; however, we’ve seen steady improvements since then, with headline consumer price growth slowing to 3.4 percent in April and 3.3 percent in May. Although this is still above the Federal Reserve’s (Fed’s) 2 percent inflation target, the continued improvement was good news.
Other inflation metrics also showed signs of improvement during the month, including the Fed’s preferred inflation metric, the personal consumption expenditures (PCE) price index. Headline and core PCE growth fell to their lowest levels in more than two years in May. As you can see in Figure 1, core PCE growth has improved throughout the year, which may set the stage for interest rate cuts in the second half as the Fed closely monitors this indicator.
We ended the quarter with futures markets pricing in one or two interest rate cuts by the end of the year, with November and December appearing to be the most likely months for a potential rate cut.
Figure 1. University of Michigan Consumer Sentiment Survey, March 2019-Present
The Takeaway
-Multiple inflation metrics showed encouraging signs of improvement during the month.
-Inflation improvements caused interest rates to fall in June, which supported stocks and bonds.
Social Economic Growth
Aside from inflation reports, other updates released during the month continued to show signs of healthy economic growth. Although hiring surprisingly accelerated in May, a rising unemployment rate during the month helped calm investor concerns about a potentially overheating job market.
Consumer spending also grew in May, with retail sales and personal spending improving after slowing in April. Both measures of consumer spending remained below their recent highs from earlier in the year; however, slower growth is still growth, and these results were welcomed by investors. Consumer spending is the primary driver of economic activity in the U.S., so these will remain important
metrics to monitor.
Business spending was also up modestly in May, with headline durable goods orders up 0.1 percent. This fits with the overall theme of slower yet potentially more sustainable economic growth in May. Looking ahead, economists expect to see solid—albeit slower—growth in the second half of the year. This would likely be a positive development for markets because slower growth would be expected to help combat inflation, which remains too high.
The Takeaway
- Economic data releases in June showed signs of healthy economic growth.
- Consumer and business spending growth remained below highs from earlier in the year, which may be a sign of more sustainable growth ahead.
- Slower growth may be welcomed by investors who remain concerned about inflation.
Market Risks to Monitor
Despite the recent improvements, inflation remains the most pressing risk for markets. We saw this in April, when a hot March inflation report caused markets to sell off. Although further progress in tamping inflation down is expected in the second half of the year, an unexpected rise in inflation would likely pressure markets.
In addition, we face considerable election-driven uncertainty—both domestically and abroad. Elections in France and the U.K. in early July highlight the international uncertainty, and domestic political uncertainty is expected to ramp up as we near Election Day in November.
Other international risks remain, too, as shown by continued conflicts in Ukraine and the Middle East. The ongoing slowdown in China is also worth monitoring given the country’s importance to global trade and growth.
And, of course, there are also the unknown risks that could affect markets in the second half of the year.
The Takeaway
- Despite recent progress, inflation remains a pressing risk for markets.
- Election-related uncertainty remains domestically and abroad.
- Other international and unknown risks could also pressure markets in the second half of the year.
Positive Outlook for the Second Half
Signs of slowing yet potentially more sustainable growth in June were encouraging for investors, and this supportive economic backdrop is expected to continue into the summer months and beyond. Strong earnings growth to start the year, combined with analyst estimates for continued growth throughout the rest of 2024, is another positive development that should support markets in the months ahead. The combination of improving fundamentals and a solid economic backdrop is expected to serve as a tailwind for investors through the rest of the year.
Given the supportive backdrop, the most likely path forward for markets and the economy remains continued growth and appreciation, though we may face short-term setbacks along the way. As we saw at the start of the quarter, real work remains to return inflation to its target, and markets remain sensitive to inflation and interest rates. Although these risks should be monitored in the short run, the outlook remains positive over the long run. If concerns remain, you should speak to your financial advisor to review your financial plans.
Disclosure: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad- based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg U.S. Corporate High Yield Index covers the USD-denominated, non- investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
Advisory services offered through Moore Wealth®, a Registered Investment Adviser. Moore Wealth is located at 50 Carrol Creek Way, Suite 335, Frederick MD 21701. They can be reached at 301-631-1207.
Authored by Brad McMillan, CFA®, managing principal, chief investment officer, and Sam Millette, director, fixed income, at Commonwealth Financial Network®.
© 2024 Commonwealth Financial Network
Moore Wealth 2024 Client Appreciation Event
Thank you to everyone who joined us for the 2024 Moore Wealth Client Appreciation Event! We always have a fantastic time when we gather with clients outside the office, and this event was no exception. We are honored to have your trust, and that you would spend time with us socially!
We hope that you enjoy the rest of the summer, and look forward to having you join us again in 2025.
Advisory services offered through Moore Wealth®, a Registered Investment Adviser. Moore Wealth is located at 50 Carroll Creek Way, Suite 335, Frederick MD 21701. They can be reached at 301-631-1207.