weekly market update 3/15/2024

For the first time this year the S&P 500 closed lower four of five trading days on the week, as inflation data continued to come in hotter than expected.  Fortunately, the weakness in stocks was muted and largely offset by an over +1% rise on Tuesday which allowed the S&P 500 to finish the week down only about -0.1%.  With inflation proving more stubborn than investors had hoped, the market implied odds of an interest rate cut from the Federal Reserve by their June 12th meeting are roughly 50%, down from 80% a month ago.  However, markets seem less concerned with the timing of interest rate cuts and more focused on the idea that interest rate hikes are likely over, and the Federal Reserve is no longer adversarial.  Next week features the Fed’s March meeting and we expect markets to scrutinize Wednesday’s policy announcements and guidance closely.

AI and ELECTRICITY

Artificial intelligence (AI) has captivated investor imaginations and appears to have propelled markets higher, but the energy required to power this emerging technology is having major implications on the demand for electricity.  Certainly this rise in demand is not solely due to the proliferation of AI, but according to the Boston Consulting Group, data centers which are essential for AI, are projected to see their electricity consumption triple between 2022 and 2030 to 390 terawatt hours.  That is equivalent to the usage of 40 million US homes.  As a result, over the last twelve months, electric utilities have nearly doubled their forecasts for additional power needs by 2028 (see NYT chart below).  Data centers can be built in just one year and states like Virginia have seen at least seventy-five data centers opened since 2019, so how the nation’s electric grid manages this surge in demand will be a critical issue that we are watching very closely.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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