The Founding Fathers knew they were putting their lives on the line when they signed the Declaration of Independence in 1776. While we get to say happy birthday, I suspect they are all smiling now, as the country has become the largest economy in the world. The Gross Domestic Product (GDP) measures this. It is the total value of goods and services produced in a country. The GDP in 2025 was $30.6 trillion. This is the result of having a capitalistic nation with strong institutions that, generally, reward innovation, investment and risk-taking.
Has it all been easy? No, it has not. Throughout the years, the nation survived the Revolutionary War, Civil War and World War I and World War II.
However, progress will continue, but it will not be a straight line. It has not been in the past, so there is no reason to expect it to be in the future. There are always potholes, speed bumps, and dead ends. We wrote about why change is normal in Why Creative Destruction Can Be a Good Thing. Despite challenges, America remains the land of opportunity.
If you were born in the United States, you should have realized that you have already hit the lottery.
We wrote about this idea in 7 Reasons Not to Wait Until Thanksgiving to be Grateful., where you want to begin in gratitude (BIG).
Looking back at more recent history we wrote about 7 Easy Things Learned From the Roaring Twenties 2.0
How Will Technology and Artificial Intelligence (AI) Shape the Future?
However, today you cannot go long without mentioning technology and its impact. The technology sector is over 30% of the Standard and Poor’s (S&P) 500 Index. Another sector that is closely related is the communication sector. The largest companies in this sector are Alphabet, Meta Platforms, Netflix, and Disney. However, the technology sector and the communications sector combined are over 40% of the Index. That is an extremely substantial number.
During my lifetime, the personal computer, the internet, and smart phones were the biggest technological changes. Marc Andreessen, co-founder of Netscape and venture capital firm Andreessen Horowitz nailed it when he said in 2011. “Software is eating the world.”
The latest technological change is AI. The hype and amount of money being invested in AI is staggering. The five hyperscalers, Alphabet, Amazon, Meta, Microsoft, and Oracle are projected to invest $1 trillion in AI infrastructure between 2024-2027.1)
Jensen Huang, CEO of NVIDIA may have also nailed it in 2017 when he said, “Software is eating the world, but AI is eating software.”
Let that sink in.
Where do we go from here with AI? Candidly, who really knows?
Jobs at Risk
Are jobs at risk? Sure, some are. Amazon has over a million robots working its warehouses nearly matching the number of employees. This trend will not end. It will merely accelerate. Will AI put more jobs at risk? Yes, it will. How many and what type of jobs?
In 2002, then the Secretary of Defense, Donald Rumsfeld said, “There are known knowns; these are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we do not know we don’t know. The answer to how many and what types of jobs AI will put at risk appears to be an unknown unknown.
However, what is known is that many people will need to be retrained. This will be a big task.
As importantly, for those that are graduating high school, they need to consider what type of training and education they want to consider going forward. These students will need to take a long and hard look at going into debt for a college degree. In the past, borrowing some funds for higher education was a good investment. Now, students and their parents need to put pencil to paper and take a much closer look at this calculation.
Now is the time to increase your cash reserve fund. We wrote that investors should have 3-6 months of living expenses in Practical Steps and Benefits of a Cash Reserve Fund. You should revisit this and increase it to 6-9 months of living expenses.
What is a K-Shaped Economy, and Why Does it Matter Today?
The current economy at large is strong, you need to look under the hood. While the K-shaped economy term has been around for some time, it got elevated during the Covid-19 pandemic and continues as to top of mind when addressing the economy.
Although the economy is doing fine, many simply are not feeling it. This suggests that people with resources are doing well, while others are struggling. Hence, one line in the K is increasing, the other is decreasing.
This pattern was accelerated because of the Covid-19 pandemic. When this hit, the work-from-home model was born. Office space in large cities became vacant. Folks put a lot of money into their homes because well, they spent a lot of time there and financing was cheap.
Housing Shortage
Many bought second homes on the shore or in rural places. Others just moved out of the big cities. This created a strong demand for houses and prices went through the roof (pun intended.) This has caused a housing shortage. In the United States, it is estimated that we need about four million more housing units.
Additionally, one of the government’s responses to Covid-19 pandemic was to cut interest rates. Back then, many folks got mortgages for 3%-4%. Now mortgage rates have been coming down to just around 6%. People are not going to move out of their home with their 3%-4% mortgage and get another mortgage on their new home for just around 6%. Financially, it makes no sense for them to move.
As people are not trading and buying a larger house, this is restricting the inventory for potential first-time homebuyers. Limited inventory, higher prices for homes and higher mortgage interest rates are keeping many first-time home buyers out of the market.
This current K-shaped economy highlights that the middle class keeps getting smaller. This is an issue that does not appear to be going away anytime soon.
As the decades march on, you will want to read about Why Getting Old is the New Normal.
Where Do We Go from Here?
As Yogi Berra once said, “It’s tough to make predictions, especially about the future.” This has been correct throughout America’s history.
Technology and the communications sector will continue to drive the bus. What form that takes or looks like is unknown. Their value will rise and fall. We wrote about this earlier in What You Need to Know to Understand the Math of the Stock Market Now.
The economy will ebb and flow. At some point, we will have a recession.
When?
Who knows?
But we do know we will have a recession.
Recessions are just a part of the business cycle.
With that said, the future remains bright.
Conclusion
250 Years to celebrate. And we are just getting started.
Technology will continue to evolve. AI will also continue to evolve. How and how quickly is unknown.
History would suggest that the biggest advances take place after periods of high uncertainty. This may be one of those times.
This perspective is especially relevant for investors approaching or in retirement who are thinking about how economic change, technology, and risk may impact their long-term plans.
If you would like to discuss this blog post and how it might affect you, call Thomas Scanlon, CFP®, CPA at (860) 645 1515 or email Thomas.scanlon@raymondjames.com.
This is original content written by Manchester, CT Financial Advisor Thomas F. Scanlon, CFP®, CPA (not currently practicing.)
- Spglobal.com – September 19, 2024
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The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Thomas F. Scanlon, CPA, CFP® and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and subject to change.