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December 8, 2023 – Markets rallied yesterday but remained in tepid anticipation of today’s employment report and next week’s CPI report. The November employment report came in close to expectations with gains of 199,000. Not sure from the early read how much those numbers were enhanced by the end of the auto and Hollywood strikes. Markets reacted negatively to the report as month-over-month wages increased slightly more than anticipated. The unemployment rate fell to 3.7% as the labor participation rate rose to a pre-pandemic high.

//  by Tower Bridge Advisors

Stocks rallied yesterday while bonds stayed mostly level in front of next week’s Federal Reserve meeting. For a change, the leaders were the big tech stocks, noticeable laggards over the last four weeks during a period where investors moved toward equities perceived as being cheaper than the high multiple Magnificent Seven.

The pop in the tech names once again reflected interest in generative artificial intelligence (AI). New offerings from Alphabet# and Advanced Micro Devices# rekindled investor spirits. If you listen to the large number of companies developing hardware and software to meet the collective needs of future users, it is likely that the total addressable market for AI will be multiples of what was perceived at the beginning of this year. While there will always be Cassandras out there warning of the evils and possible nefarious uses of artificial intelligence, this rapidly developing technology will be incorporated into virtually everything we use. Just as few saw the impact that smartphones would have on the ways we socialize, communicate, travel, and retrieve data, AI will be an equally powerful revolution. To take advantage of all of AI’s future advantages, we will have to replace virtually all existing desktop and mobile devices with new iterations designed specifically to maximize the intellectual capacity offered by new technologies. Thus, while P/Es today seem high, they may not be based on what lies ahead.

The challenge will be to separate the wheat from the chaff and hype from reality. Here’s what we do know.

1. Generative AI is for real, that’s not hype. The total addressable market is in the hundreds of billions of dollars. We can all identify many of the early leaders like Nvidia#, but rapid change means a different competitive environment. Companies that seem dominant today may not be dominant several years from now. Just look backwards to AOL or Yahoo as examples of early leaders that virtually disappeared overnight.
2. There isn’t a company within the S&P 500 that won’t be telling investors how AI is going to improve the way it does business. I would accept that everyone will incorporate AI features into daily business, but will it make a measurable competitive different in how Procter & Gamble makes or sells paper towels?
3. Perhaps the most important macro focus will be on whether AI improves overall productivity. The development of planes, trains and automobiles clearly made us all more efficient. The development of Facebook and TikTok probably didn’t move the needle much even though both became hugely profitable. AI is likely to improve overall productivity. New products will be developed faster. The key is whether the productivity improvements can offset the negative impact of declining birth rates around the world.

But let’s move back to today. The most important near-term economic question is whether we are headed for recession or a soft landing. What we know is that the trends in place today are for lower inflation and slower growth. If growth slows too much, that’s how we arrive at a recession. Ideally, the pace of deceleration slows materially the closer growth rates get to zero. But we won’t know for sure until we get there.

Today’s employment report offers some clues. The good news was pretty good job growth helped by returning workers in the auto and entertainment industries as strikes ended. The labor participation rate rose, a sign of slack in the labor market despite solid jobs growth. The month-over-month rise in wages of 0.4% was higher than expected although year-over-year growth of 4.0% was in line with forecasts. In sum, today’s numbers support the soft-landing thesis. It also reinforces that the Fed will not only stand pat next week but will indicate no rush whatsoever to start cutting rates. The Fed would be perfectly happy to see the economy stay on its current glide path waiting for inflation to continue to gradually move in the direction of the Fed’s 2% target. Over 40% of net new jobs came from the health care sector.

Today, Nicki Minaj is 41. Kim Basinger turns 70.

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « September 18, 2023 – Markets are directionless, torn between better economic activity and an increase in storm clouds from labor unrest to China. What is crucial is the future trend for interest rates. Investors will parse this week’s FOMC meeting for clues, but probably won’t get a much clearer picture for their efforts.
Next Post: August 12, 2024 – Last week’s volatility exposes the heightened level of uncertainty in today’s financial markets. This week, the largest retailers report earnings and may offer some clarity into consumer spending trends. But uncertainty is likely to remain elevated until we get closer to the November elections. »

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  • August 28, 2025 – The July jobs report signaled a cooling labor market, with slowing growth and a slight rise in unemployment, yet consumer spending remains resilient despite retail price hikes caused by new tariffs. This mixed economic data creates a conundrum for the Federal Reserve as it balances its dual mandate amid political pressure and inflationary headwinds. Given this uncertainty and the S&P 500 trading near all-time highs, investors should brace for potential market volatility post Labor Day, as the Fed’s next policy moves will depend heavily on upcoming inflation and jobs data.
  • August 25, 2025 – The Fed’s shift in policy, as stated by Jerome Powell last Friday, moves away from a focus on inflation and more toward insuring full employment. Such a shift suggests more short-term rate cuts and a willingness to tolerate some inflation as long as it stays below 3%. A willingness to tolerate a bit more inflation may sound innocuous but it could lead to unanchored long-term inflation expectations and keep 10-year Treasury yields elevated. If so, the euphoria expressed in Friday’s market rally may have been a bit too exuberant.
  • August 21, 2025 – This Friday we will receive commentary from the Federal Reserve after its annual gathering in Jackson Hole, Wyoming. The central-bank gathering has sometimes been a venue for marking shifts in Fed policy. Last year Fed Chairman Powell used it to signal that rate cuts were coming, and followed through the next month. The Snake River, which runs through Jackson Hole, provides an apt backdrop for the Fed’s meeting where the waters can be turbulent and winding. In the meantime, technology stocks have retreated this week and a number of consumer-focused companies have provided both encouraging and uncertain signals.
  • August 18, 2025 – The noise of front-page news doesn’t seem to coincide with record stock prices. War, ICE raids, violent storms and tariffs may be the topics of the Sunday talk shows, but the stock market cares more about earnings and interest rates. Earnings are rising and interest rates are stable. Will that continue? Earnings growth should slow a bit as the full impact of tariffs hits. While the Fed Funds rates should start to decline this fall, markets will focus on changes in the 10-year Treasury yield more than the Fed Funds rate.
  • August 14, 2025 – The market is increasingly divided, with a strong AI-driven rally on one side and a weakening consumer economy on the other. This contradiction creates a significant risk of a sudden economic downturn or stagflation, as soaring tech valuations may be unsustainable without broader economic support.
  • August 11, 2025 – There is an expression that rationality requires separating the wheat from the chaff. In Wall Street, to be a successful investor, it is necessary to separate hype from reality. That is particularly important as speculative fever rises. Some of the hype is real; some is nonsense. Don’t simply follow consensus. As investors you invest in companies, not hype, not single products, hot today but cold as ice tomorrow. Think rationally and you will be a successful investor.
  • August 7, 2025 – Football is considered a game of inches. Consider the “Brotherly Shove,” popularized by the Philadelphia Eagles, which is a play used to gain very short yardage and advance down the field. In order to counter this offense, defensive opponents have employed various tactics, but without much success. Two consumer-focused companies, McDonalds and Disney, recently reported quarterly earnings, and are slugging it out on the field as consumer preferences change and these companies try to adapt.
  • August 4, 2025 – Confusing economic reports on GDP and the labor market can be decoded to show that growth in the first half of 2025 was muted while inflation was well contained before the full impact of tariffs. If those data trends continue, look for one to three 25-basis point rate cuts before the end of 2025. That outlook may change with subsequent data but it is increasingly clear that an economy that has proven so resilient may need a bit more help to offset the impact of tariffs and significantly lower population growth.
  • July 31, 2025 – The U.S. economy demonstrated a strong rebound in Q2 2025 with 3.0% GDP growth. Tech giants Microsoft and Meta significantly exceeded earnings expectations, fueled by the ongoing AI boom and robust cloud and digital advertising performance. While the current AI-driven market rally shows parallels to the dot-com era’s speculative growth, today’s tech giants exhibit stronger financial fundamentals than many during the earlier boom. Investors should balance the allure of high growth with valuation discipline and diversification to mitigate risks in this dynamic market.
  • July 28, 2025 – The world looks pretty healthy but rising speculation elevates our concern. When the amount of corporate money flowing into bitcoin is twice the amount raised in initial public offerings to date, that gets our attention. With that said the focus this week will be on earnings and a slew of economic data on inflation, interest rates, and employment, all of which can be market moving.

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