Five Things We've Learned Since the Last Newsletter
As the old saying goes, time flies. In the 3 months since our last newsletter, we have learned a lot about the state of the U.S. & global economy. The five most important takeaways include:
- Inflation has eased meaningfully, particularly in goods prices. Core inflation (excluding volatile food and energy prices) declined to 5.3% on a year-over-year basis in April, down from a peak of 6.6% last summer. Goods inflation in particular has moderated as supply chains have continued to heal. The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) Price Index, fell to 4.7% in April, down from a peak of 7.0%.
- The labor market remains robust, with unemployment at 3.4% & demand for workers well above pre-pandemic norms. Despite a spate of high-profile layoffs in tech & finance, job openings remain near record highs.
- The U.S. banking system remains largely on stable footing, but tighter lending standards are starting to weigh on economic activity. Banks that survived the spring crisis are now more cautious about making new loans, which is exactly what the Fed wants to see as it tries to cool the economy.
- Artificial intelligence is taking the world by storm. After the release of ChatGPT in November 2022, public interest in AI has exploded. Major tech companies are investing billions into AI research & product development. The early winners of this AI revolution have been semiconductor companies like NVIDIA, which has seen its stock price soar in 2023 as investors bet that its chips will power the AI revolution. The next 5 years will be critical in determining which AI tools become ubiquitous in our daily lives.
- The U.S. debt ceiling debate has been resolved (for now), with Congress passing a bill that suspends the debt ceiling through January 2025. While this is good news in the short term, the long-term trajectory of U.S. debt levels is a major concern that has yet to be meaningfully addressed.
After a particularly difficult 2022, we're happy to report that our clients have been rewarded for the discipline and patience they showed during the bear market. The S&P 500 finished the first half of 2023 with a total return of 16.9%, and our client portfolios performed in line with or better than their benchmarks.
We continue to maintain a balanced approach. Equities are positioned to participate in market upside, while bond allocations are now yielding significantly more than they were a year ago. As always, we'll continue to monitor the situation and adjust portfolios as needed.
Tilia 5th Annual Charity Outing
Last month, Tilia hosted our 5th annual charity golf outing at the Country Club of Landfall. This year's event raised over $25,000 for the Good Shepherd Center, a Wilmington non-profit dedicated to feeding the hungry, housing the homeless & providing programs for those in need. We're grateful for the support of our partners, clients & local businesses who made this event a success.
Sources