David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, joins Michael Batnick and Downtown Josh Brown to discuss the post-pandemic economy, when economic indicators stop working, how AI saved the market, the 2024 stock market outlook, and more.
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Quick takeaways
The surprising resilience of the labor market and potential for a mild recession despite concerns of a consumer crunch.
The impact of inflation, emphasizing that a recession is not necessary to bring inflation down and highlighting the interplay between inflation, wage growth, and inequality.
The significant impact of AI and the Magnificent Seven tech stocks on the stock market, driving overall returns and reflecting growing market interest and investment in AI-related technologies.
Deep dives
The Impact of Spotify Unwrapped and Self-Reflection
The podcast episode delves into the speaker's personal realization and self-reflection prompted by their Spotify Unwrapped results. The speaker expresses surprise and even a sense of unease upon discovering their music preferences, which differed from their perception of themselves. This realization sparks a discussion about the influence of technology in revealing personal insights and preferences.
The Continued Strength of the Labor Market
The podcast episode highlights the surprising resilience and strength of the labor market, which has continued to fare well despite concerns and projections of a consumer crunch. The speaker acknowledges that the labor market has outperformed expectations and discusses the potential for a mild recession, contrasting with optimistic outlooks due to the economy's slow but steady growth, low inflation, and consumer spending.
The Role of Inflation in Shaping the Economic Landscape
The podcast episode explores the impact of inflation and its significance in the current economic climate. The speaker discusses the misconception that a recession is necessary to bring inflation down, emphasizing that the recent decrease in inflation disproves this notion. They highlight the interplay between inflation, wage growth, and inequality, arguing that inflation may be influenced by factors such as income inequality and the diversion of wealth towards financial assets rather than goods and services.
The Influence of AI and the Magnificent Seven Stocks
The podcast episode delves into the significant impact of AI and the Magnificent Seven tech stocks on the stock market and the economy as a whole. The speaker discusses the increasing prevalence and integration of AI technology in various industries and its potential for enhancing productivity and economic growth. They highlight the impressive performance of the Magnificent Seven stocks, which have played a major role in driving overall stock market returns, reflecting the growing market interest and investment in AI-related technologies.
Concerns about market concentration and potential economic bubble
The podcast raises concerns about market concentration, specifically in large-cap tech stocks, and highlights the potential for an economic bubble due to enthusiastic investment spending. It references historical examples like 1999 and emphasizes the need for long-term investors to focus on good companies. While the current market performance may seem positive, the podcast cautions that historically, when the S&P 500 has outperformed by 14% over the previous 12 months, the average return one year later has been negative. It also highlights the risk of investors crowding into certain stocks, potentially leading to poorly positioned valuations.
The implications of inflation and the possibility of rate cuts
The podcast delves into the relationship between inflation and the stock market, suggesting that as inflation declines, it could lead to lower long-term interest rates and higher PE ratios. It argues that lower inflation provides a favorable environment for both stocks and bonds. The discussion also touches upon the possibility of rate cuts by the Fed, with differing opinions on the timing and likelihood of such cuts. Ultimately, the podcast emphasizes the importance of considering inflation trends and their impact on long-term rates rather than solely focusing on rate cuts in the short term.
On episode 120 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, to discuss: the post-pandemic economy, when economic indicators stop working, how AI saved the market, the magnificent seven, the 2024 stock market outlook, and much more!
Thanks to Public for sponsoring this episode. Go to Public.com/compound to lock in 5.4% yield on your cash.
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