We’re at the halfway mark for the year. As we go into the second half of the year, we have a lot of reasons to be optimistic for the second half of 2023. Here are some of the highlights we covered in our 31st podcast episode of Market Talk.

Resolution of High-Risk Events

We had a lot looming over us in the first half of the year that caused a lot of uncertainty. The two most notable were the government debt ceiling and the banking crisis.

Debt Ceiling

When a country reaches its debt ceiling, the government can no longer borrow more money to fund its spending obligations. When this happens, investors may become concerned about the potential for a default on government debt. There was a lot of potential for increased market volatility, higher borrowing costs, and a decline in investor confidence. Fortunately, this was recently resolved with a government increase on that ceiling.

Banking Crisis

The banking crisis that hit us around March 2023 is also largely contained. The KBW bank index had plummeted 10% during the event, and now it is back to pre-crisis levels. This should give investors and consumers a little more security going into 2023.

Resolving these two high risks events removes a lot of uncertainty for the market. Things look much better than they were a few months ago as we enter the second half of 2023.

The “Base Effect” and How it Will Affect CPI in 2023

The term “base effect” refers to how a previous period’s high or low starting point can affect the interpretation of growth rates or percentages in subsequent periods.

When we calculate growth rates, we compare the current value of something to its value in the previous period. However, if the previous period had an unusually high or low value, it can distort our understanding of the growth rate in later periods.

This time last year, we were at a high 9.1% inflation increase. This year, we are at almost half that, and we could go down to as low as 3% by the end of this year. The base effect from the past year will heavily affect where the federal government will place its new ‘neutral’ rates, or the bare minimum rate needed to support the economy. This is important because when they stop raising rates, they will drop them to around this point.

AI Hype

AI continues to be a hot topic in the market, especially regarding jobs and productivity. Various jobs that were once considered bulletproof are being taken by AI early on, and this has caused a lot of concern for the job market. But we speculate that these jobs will return or be replaced with those requiring a human element as we move forward.

Every big jump in technology tends to bring a shift in how workplaces and consumers behave. The internet revolutionized how we communicated. Mobile technology made the internet accessible almost anywhere 24/7. Cloud technology changed how consumers and businesses store data. Like AI, each had an uncertain chaotic phase before things settled into a new normal. We are confident that AI will become more of a productivity tool than a job replacement in the long run.

RHP has a portfolio of companies that embrace generative AI and other Large Language Models as productivity enhancers. We’re confident that they have staying power as we continue to watch how AI transforms the digital and workplace landscapes.

Overall, Things are Looking Good for the Second Half of 2023

Despite the fears and high-risk situations we faced in the first half of the year, everything looks good as we head into July. The debt ceiling and banking crisis have been dealt with. Interest rates could soon see a decrease as inflation slows down. And the world continues to evolve, with AI becoming the latest major technological jump.

We also touched on numerous other topics like the strength of the dollar, China’s place in the global economy, and the state of commercial and residential real estate. Join our Market Talk podcast to hear the rest! If you have any questions about where we are going as we head into the rest of 2023, contact us today for a consult!

This material is intended for educational purposes only. You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Investments involve risk.