⚡ Can AI Investments Deliver the Returns Investors Expect?
(AI Investments) // Macro Mornings - #AIInvestment #ConsumerTrends #LaborMarket #Macro #Finance #Investing
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⚡ This is part of a series designed for those who don't want to miss out on any market news. I cover all the crucial market developments that the community needs to know. Feel free to catch up on previous emails here if you'd like to start from the beginning!
Labor Market Pressures
Narrow Job Creation Concentration: Over 75% of the 254,000 jobs added in the past 12 months came from just three sectors: education, health services, and hospitality. In comparison, sectors like construction, which grew by 2% in 2023, are showing signs of contraction. This limited job growth could put pressure on overall economic expansion as we move into 2025.
AI’s Uncertain Hiring Impact: AI technology is causing hesitation in hiring, particularly in knowledge-based sectors. Companies investing heavily in AI may delay hiring until they better understand the technology's productivity potential, which could slow labor market recovery. This is in contrast to the post-pandemic boom, where tech hiring surged by 15% from 2020 to 2022.
AI Investment: The Productivity Gamble
High AI Spending, Uncertain Returns: AI infrastructure investments surged in 2024, with companies like NVIDIA and Microsoft leading the charge. Analysts expect AI-related capital expenditure to exceed $500 billion globally by 2025, a significant increase from $300 billion in 2022. However, there is concern about whether these investments will yield the expected productivity gains or whether returns will be delayed.
AI’s Market Impact: The future of AI capital spending will shape market performance. If AI delivers the expected productivity gains, market analysts project a potential 10% increase in AI-related sectors by 2026. Conversely, subpar returns could lead to a slowdown in investment by 2025.
Financial Strain Building
Delinquency Rates Rising: Credit card and auto loan delinquency rates have risen to their highest levels since the Global Financial Crisis, with 7% of auto loans and 6.8% of credit card balances over 30 days past due. This trend raises concerns about financial strain, especially as inflation continues to impact consumer budgets.
Interest Rate Pressure: With mortgage rates above 7% for the first time since 2001, higher interest rates are expected to weigh on consumer sentiment and spending well into 2025, even if the Federal Reserve stabilizes rates. Consumer spending, which grew 3% in 2022, could slow to under 2% in 2024 as household budgets tighten.
Alessandro
Founder of Macro Mornings
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.