Apropos of a stock market that has become fascinated with the potential of artificial intelligence (AI), Paul McCartney announced last month that the Beatles had come together one last time—through the miracle of AI—to record “the final Beatles record.” While we will have to wait until later this year to hear this unique composition, investors have already celebrated another startling performance. A small handful of stocks deemed to be the winners of the AI breakthroughs, dubbed the “Magnificent 7” (i.e., Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla), soared in price. In fact, without the benefit of these seven stocks, the return of the S&P 500 would have been negative through the end of May, rather than the nearly 10% gain it did record. If a stock wasn’t part of the AI chorus, you were forced to deal with the reality of the Federal Reserve seemingly intent on continuing to increase interest rates until the economy enters a recession. 

With the U.S. economy so far proving to be more resilient than expected, the labor market still robust (though slowing), and a considerable part of inflation proving to be transitory, more stocks started to recover in June, indicating that inflation may be cooling. Now, the real question is whether or not interest rates will stop rising. If so, we expect more stocks to participate in the market’s rally. More interest rate increases certainly raise the odds of a recession and weaker equity results. 


The Long Run – July 2023