The Pulse on the Economy and Capital Markets: February 19 – 23, 2023

To Summarize: The U.S. technology giants, also known as the “Magnificent 7,” are driving stock market returns despite higher-than-expected inflation. Rising interest rates are impacting consumer spending, particularly on appliances and automotive purchases. Corporations are accelerating AI spending, yet IT budgets are not being negatively impacted. We unpack this and more in the February edition of The Pulse.

In the Markets: Technology giants Amazon, Meta, Microsoft, and Nvidia continue to dominate stock market returns while the bond markets struggle due to interest rate policies. However, 4^th quarter earnings reports were better-than-expected, likely from stringent cost-management strategies. 

Rising Interest Rates Dampens Consumer Spending: Higher interest rates are impacting consumer spending, especially on goods that are usually financed, i.e., appliances and automotive. The CFOs of Whirlpool and Harley Davidson are expecting higher inventory levels for the first quarter of 2024 as discretionary spending has dropped. Specifically, the electric vehicle (EV) market is underperforming, causing some automotive manufacturers, parts suppliers, and dealers to pare back on EV expectations. 

Who Pays for AI Investments? Spending on AI remains a strategic priority, and many corporations are not cutting IT budgets to fund the investment. Instead, the primary source for funding is coming from functional areas where AI will likely have a significant impact, such as HR, finance, and marketing. 

Top Headlines: We’re reading about what Google’s AI boss has to say on scaling, the seven tech giants’ profits exceed almost every country in the world, cargo diversions to the West Coast have started, and apartment supply surges to the highest levels since the mid-1980s.  

Related resources:

• Google’s AI Boss Says Scale Only Gets You So Far
• Magnificent 7 profits now exceed almost every country in the world. Should we be worried?
• Cargo diversions to West Coast have started, LA port director confirms
• Apartment Supply Surges to Highest Levels Since the Mid-1980s