THE WEEK ON WALL STREET
Stocks fell last week as investors assessed progress on trade negotiations, new U.S. tariffs, and fresh data on the U.S. economy. The S&P 500 Index fell 2.36 percent, while the Nasdaq Composite Index declined 2.17 percent. The Dow Jones Industrial Average dropped 2.92 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, lost 2.95 percent.
FACT OF THE WEEK
On August 5, 1914, the first electric traffic signal lights are installed in Cleveland, Ohio.
MARKET MINUTE
Action-Packed Week
Stocks largely went sideways over the first half of the week as investors waited for more Q2 corporate results, fresh economic data, and the Fed decision. The U.S.-E.U. trade agreement announced over the weekend had a muted impact on the market as the week began. Stocks then retreated as China trade talks appeared to stall, with the Dow declining the most of the three major averages through midweek. Stocks gained on Wednesday morning after the latest gross domestic product (GDP) report showed consumer spending powered the economy back to 3 percent annualized growth in Q2. That afternoon, the Federal Reserve announced they were holding rates steady, which put some pressure on stocks.
Selling pressure continued on July’s final trading day as investors continued to fret about the Fed’s next move. The Personal Consumption and Expenditures (PCE) Index—the Fed’s favored inflation metric—showed a June uptick in core goods prices, unsettling investors. Stocks were under pressure from the opening bell on Friday as investors sorted through fresh tariff announcements from the White House, a softer-than-expected July jobs report, and mixed Q2 corporate reports from two megacap tech names.
Mixed Economic Signals
There was a trove of economic data for investors to parse last week. First, there was economic growth. While 3 percent GDP growth in Q2 is a solid step up from a 0.5 percent contraction in Q1, consumer spending largely drove the increase, offset by slower business spending—especially investment in equipment and buildings. The PCE report showed why the Fed remains focused on inflation. Finally, Friday's jobs report pointed to a slowdown in hiring in July. A bit more concerning was that the jobs data from prior months were revised lower. The Fed has no meeting in August, with three other meetings scheduled for 2025.
FINANCIAL STRATEGY OF THE WEEK
How Will the Economy React to AI?
Artificial intelligence (AI) tools are already invading every aspect of our lives. Debates are ongoing about how it will infiltrate individual industries. Governments are working to understand AI and determine how to regulate something that affects much more than the digital space. Its potential uses are being realized everywhere, from musicians turning 50-year-old demo recordings into fully realized hit singles to firms analyzing data to increase productivity, maximize security, and even develop new medicines. The potential for AI is a fast-moving beast, with new tools emerging so quickly that they sometimes make existing ones obsolete just months after they become available.
It has certainly made many people nervous. An online educator surveyed 800 executives about their futures with AI. Almost half of the respondents believed that many of the job skills vital to the employees of various industries, including C-suite executives, may be irrelevant in just two years.1,2
This is some scary talk, to be certain. However, it is important to note that such change is inevitable. Just as the telephone put the telegraph out to pasture and the commercialization of the Internet changed how every company does business, AI will change things. However, not all aspects of the change will be bad or negative.
For those in the workforce, AI represents this generation’s pivot point. Just as prior generations got used to offices centered around emails and messaging tools, so will this generation of workers get used to the many AI tools that will help them work better and more efficiently. Jobs at all levels will change to incorporate emerging innovations. Executives will have access to resources that simplify their tasks and expand their abilities.
AI promises to help make a massive leap forward in terms of what people can accomplish, and its tools can help people do tasks more precisely and at previously impossible speeds. This sort of innovation always has growing pains. However, in the long run, it represents incredible potential for the economy to grow in new directions, uplifting the industries that every company changes and opening avenues that never existed before.
Although AI challenges the economy, investors have faced this challenge during every innovative period. As your trained financial professional, I will consider big and small changes, and I look forward to hearing any questions you may have about the future of AI.
1. Forbes.com, October 14, 2023
2. edX AI Survey, 2023