What’s right with the world

A daily diet of negative news can lead even the most experienced investors to lose conviction in their long-term investment plans.

Bad news often overshadows more favorable events. Even after the U.S. avoided a recession and the inflation picture brightened in 2023, many Americans remain downbeat about the economy and markets.

With wars in Ukraine and the Mideast, simmering U.S.-China tensions and a contentious U.S. presidential campaign underway, it is understandable that investors may be anxious. Yet positive trends across technology, health care and other areas are transforming lives and driving opportunity for companies and patient investors. Here are five reasons we’re feeling confident about the future.

1. The U.S. may be stronger than you think

Jared Franz, U.S. economist

Investors spent 2023 bracing for a recession that never materialized. In the face of elevated inflation and rising interest rates, GDP, a measure of total economic output tracked by the U.S. Department of Commerce, expanded at a stunning 3.3% annualized rate in the fourth quarter. Indeed, the U.S. may be even stronger than you think.

First, the American consumer sector continues to flex its muscles. In January, the economy added 353,000 jobs and wages increased 4.5% year over year, a robust pace that is likely to slow. That said, continued, albeit more moderate labor and income gains can continue to support consumer spending growth. Moderating inflation should also bolster real income growth, particularly among lower income workers.

What’s more, the U.S. housing market appears to be recovering as mortgage rates ease, and there are early signs manufacturing is heating up as businesses begin restocking inventories. The U.S. federal government has committed $1.4 trillion for capital projects, including the construction of manufacturing facilities as American companies seek to diversify supply chains.

The Federal Reserve’s efforts to achieve a soft landing for the economy, bringing down inflation while maintaining growth, have thus far been successful. Inflation remains above the Fed’s 2% target, and it is unclear when the central bank may begin to lower rates. But with what it has managed thus far, the central bank may have laid the groundwork for an extended period of economic expansion.

2. The AI productivity boom is just beginning

Martin Romo, principal investment officer, The Investment Company of America®

The introduction of ChatGPT and other artificial intelligence (AI) tools has garnered wide attention for the technology’s potential to drive vast gains in productivity across industries, reducing costs and creating efficiencies for companies and consumers.

Of course we often overestimate technology’s impact in the short term and underestimate its impact over time. The key for investors is to distinguish between what is hype and what represents tangible investment opportunity. That said, little more than a year since ChatGPT was released it is no longer just a buzzword.

Companies in the health care, financial services and retail sectors have already begun to harness its potential to automate complex tasks, streamline workflow and accelerate technological advancements.

For example, Mastercard is using generative AI to streamline its employee recruiting process and for detection of payment fraud across its networks. Online retailer Amazon, which has long used a form of AI for its product listings and recommendations, is using AI at its Amazon Go physical locations that enables consumers to take items and pay on the Amazon app while avoiding checkout lines. In health care, AI is being adopted by hospitals and medical providers to streamline documentation and other administrative tasks, helping to reduce the number of patient visits that require physician notes and address staffing shortages.

3. More stocks are poised to join the market rally

Jonathan Knowles, equity portfolio manager, EuroPacific Growth Fund®

Stock markets defied investor expectations last year and delivered surprisingly robust returns. The S&P 500 Index, a broad measure of U.S. stocks, soared 26.29% in 2023. The MSCI All Country World Index (ACWI) ex USA Index advanced 15.62%.

But examples of investors who think they’ve missed the market rally may want to take a deeper look. The Magnificent Seven — Apple, Meta, Microsoft, NVIDIA, Amazon, Alphabet and Tesla — accounted for an overwhelming proportion of the market’s total return in 2023. In fact, a look at returns over the past two years reveals that returns for the other 493 companies in the S&P 500 and more than 2,900 other stocks in the MSCI ACWI were generally flat. Observers can detect a similar pattern across international markets.