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PFP - May 2023 Newsletter

AI Considerations

Many of you have heard about the Chat GPT and artificial intelligence models that have been the big talk of 2023. The applications for these tools seem to be endless. After all, this “robot” has artificial intelligence which enables it to write a paper in 30 seconds that would take a prolific student several hours. It can calculate the most complex math equations in fractions of a second. We are in the early innings of discovering the applications and limitations of these AI tools. The next several years should be interesting to see how this integrates into everyday life.  On that note, I figured I would see if it can help our firm and our clients. I asked Chat GPT4 “In 300 words or less write a summary of the current state of the stock market and key factors one should watch to determine the direction for 2023.” Here is the exact response:

I'm sorry, but as an AI language model, I cannot predict or summarize future events. My programming is limited to providing information based on existing data and trends. It is not possible for me to provide a summary of the stock market for 2023 year to date as it has not yet occurred. However, I can provide some general information about the stock market and how it works. The stock market is a complex system where investors buy and sell shares of publicly traded companies. The value of these shares is determined by a variety of factors, including the performance of the company, economic conditions, and global events. The stock market is often used as a barometer of the overall health of the economy, as it reflects the confidence of investors in the future prospects of businesses. In recent years, the stock market has experienced significant volatility due to a variety of factors, including political uncertainty, trade tensions, and the COVID-19 pandemic. Despite these challenges, the stock market has generally performed well over the long term, with many investors seeing significant returns on their investments. To be successful in the stock market, investors must be knowledgeable about the companies they invest in and the broader economic trends that affect the market. They must also be able to manage risk and make informed decisions about when to buy and sell shares. Overall, the stock market is a complex and dynamic system that is influenced by a wide range of factors. While it can be challenging to navigate, it can also be a lucrative investment opportunity for those who are willing to put in the time and effort to understand it.

So evidently these tools can do a lot, but they cannot predict the future. They also are unable to understand and calculate investors’ unique needs and financial goals. We agree with monitoring the factors it lists above. Blending technical and fundamental analysis can be effective when analyzing the financial markets. However, there is no silver bullet. The famous saying is the “the market timing hall of fame is empty”. That doesn’t mean we don’t work hard to pay close attention to finding investments where the reward outweighs the risk. This is a very important aspect of managing risk for clients.


Economic Summary


There is no shortage of headwinds right now in the economy and the markets. There are too many to list here and most of you probably are already aware of the major ones.  In this week’s commentary from First Trust, Brian Wesbury sums up the current state of the economy well, so we have attached that here for your reading pleasure.


The debt ceiling “negotiations” are still in limbo at the time of this letter. It appears this could go down to the last minute. The strong consensus is that some sort of deal to extend the debt ceiling temporarily will be reached but it could be at the last minute. This could rattle the markets as we approach June. However, it appears the potential larger issue is the long-term spending projections. The consensus among our trusted economists and research teams is that using higher taxes to keep up with higher spending could increase the government’s size relative to the private sector. Historically, this is not the path to greater prosperity.  Obviously, we are closely monitoring the situation and how it may impact our clients.

Challenging times have proven to be some of the most productive in history. Humans don’t like being uncomfortable. It forces us to be creative and ingenious. When we feel discomfort, we then will begin to make compromises that we otherwise would not make. We see reality in higher resolution. We feel a sense of urgency to change things, so we feel comfortable again. Yes, we have a lot of headwinds right now, but it seems there are always more headwinds than tailwinds. This is psychological. Fear of loss outweighs greed in most people. Most US citizens have been very comfortable and complacent for the last decade. Despite the economic and social problems, we are dealing with today, most continue to be very comfortable. We are beginning to see signs that higher interest rates and a slowing economy are beginning to bring some discomfort. Investors should remind themselves that this is a normal part of the economic cycle. Recession is a natural part of the cycle even though we would certainly prefer to avoid it. Short term pain can lead to long term gain is the idea here. Predicting we will have a recession is easy. Predicting the timing of a recession and the ensuing recovery is the difficult part.

Positive Outlook

At times like this in particular, it is healthy to remind ourselves of the positive and not always focus on the negative. The list of factors that will drive the US economy into the future is exciting. We enjoy so many things in this part of the world that others do not. National security, ample fresh water, plentiful energy, accelerating manufacturing industry, etc. Demographics are one of the biggest challenges that most developed countries have. Most developed countries have too few young people compared to the older population groups. China perhaps has the biggest issue with this. Plus, nobody wants to move to China. People want to move to the US. Many experts believe our demographic issues are nothing like some of the other countries and if the US would figure out an efficient system to allow legal immigration, this will strengthen our age demographics. No doubt we have challenges, especially socially. However, there are many bright spots for the future. Ample employment and strong job growth returning to North American manufacturing are trends to be mindful of. We are in the process of going through a revolution of sorts, where technology will boost productivity and connectivity. The economy typically is never as bad or as good as things seem.

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