It’s hard to believe that the first quarter of 2024 is already behind us. After a very good 2023 for the stock markets, we saw continued strength during the first quarter of 2024. The economy seems to be continuing right along with strength in employment and other economic indicators, such as manufacturing and consumer spending. The overall data has been so good, in fact, that the Federal Reserve has left interest rates unchanged so far this year. We think there are three major trends to keep an eye on for the rest of the year, Artificial Intelligence, Deglobalization, and the Labor Markets.

Artificial Intelligence (AI) is by far the biggest theme we are seeing companies embrace right now. It echoes back to the “dot.com” era where every company was talking about how they were setting up their “online presence” and how they were leveraging it to help their actual business whether that was selling pet toys or jet engines. Now companies are discussing how they plan to use AI to serve customers and cut costs. And those companies that are building the “shovels and pickaxes” (such as chip manufacturers) in this AI “gold rush” are now household names and topics of cocktail party victory laps. Just like its “dot.com” predecessor, the AI boom will also be marked by overindulgence, shaky business plans, and the occasional outright fraud. However, AI will also likely change our world in ways we could not imagine just a few years ago. I recently started reading Superintelligence: Paths, Dangers, Strategies by Nick Bostrom an in-depth book on AI and the possible routes things may go. The scale of potential for AI is quite humbling and some of the possible paths can make the most dystopian of futures look relatively bright. AI is here to stay though, and we continue to view it as a necessary component for business in the future.

One trend we’ve mentioned in the past is Deglobalization or the unwinding of global supply chains. To fully understand the effects of Deglobalization we must first revisit its predecessor, Globalization. The promise of Globalization was opening up markets and allowing free trade with different countries that could specialize in producing different goods and global trade. This would allow for the free flow of goods and would result in a higher standard of living for everyone. For the most part Globalization delivered on its promise, the standard of living in many countries around the world increased drastically between 1990 to 2020. However, while Globalization did raise the standard of living for the poorest of countries, it resulted in wage stagnation for lower earners in wealthy countries and in increased wealth concentration in almost all countries. There were definitely winners and losers from that trend. In the late 2010’s, movements in a number of different countries started to push back against the effects of Globalization and then the COVID pandemic happened. The pandemic basically shutdown global trade for a period of time, resulting in snarled supply chains and delays in everything from cars to medications. There was now a laser focus on where things are made and whether or not we could get them during a disruption. The last nail in the coffin was the Russian invasion of Ukraine and the return of Great Power competition. Deglobalization means that we will start producing more goods either within the United States or in very friendly countries nearby (think Mexico and Canada). We’ve already seen significant investments in new factories to produce everything from microchips to batteries and other goods. This will likely result in increasing new demand for “blue collar” jobs which leads us to the Labor Markets.

The Labor Markets are likely to be constrained for a number of years. Globalization had a downward pressure on labor as a company could make goods anywhere and could move production to the lowest costs. Hence the reason that many companies opened factories in the Far East, which resulted in an excess of employees here in the United States. We also had two of the largest generations in history, Baby Boomers and Millennials, at working age which exasperated the glut of workers. Now Baby Boomers are retiring and one of the smallest generations in history, Generation Z, are coming into the work force. This will likely result in continued higher wages as companies fight over staffing. Higher wages typically result in higher inflation. Higher inflation leads us to higher interest rates. It is our expectation that we will see higher interest rates for longer than most people expect. So far, the Federal Reserve has kept interest rates elevated, and we do not expect relief before the last quarter of the year and are investing appropriately. We will be watching the Labor Markets closely to see if this holds up.  An increase in unemployment may signal a short-term reprieve, but the long-term trend looks strong.

As always, we thank you for your continued trust. If you have questions or concerns or have had a recent change in your situation or goals, please reach out. 

Kevin P. Sullivan, CFA, CFP®, AIF

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