U.S. stocks closed lower on Wednesday as Federal Reserve Chairman Jerome Powell’s congressional testimony reinforced the central bank’s objective to rein in inflation as he hinted at the likelihood of further interest rate hikes.
At the start of this year, markets were expecting a bumpy ride on the markets. Yet, the S&P 500 is up by almost 15% this year, while the tech-heavy Nasdaq 100 Index has advanced by almost twice that amount.
While it’s still not clear quite what great things have happened in the last six months to justify the extra optimism, it’s obvious that the excitement over AI has been essential to the positive surprise. The ChatGPT artificial intelligence service was launched just as strategists began unveiling their 2023 predictions, at a time when few at the time saw this artificial intelligence-charged rally coming.
But, if you exclude the most prominent AI stocks, the rest of the S&P 500 is broadly on course for the year people expected, and since then rate expectations are higher because inflation is more embedded.
The Bank of England lifted rates again today, At its meeting ending on 21 June 2023, the MPC voted by a majority of 7–2 to increase Bank Rate by 0.5 percentage points, to 5%. Two members preferred to maintain Bank Rate at 4.5%. In Australia, the RBA needs to see unemployment rising to try to grip inflation, as rates stay higher for longer.
As a result markets are likely to be weaker for longer, to the point where some are arguing we are seeing a re-run of the 1999 dot com boom bust. We will see.
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