🇺🇸 Americans got richer

What’s going on here?

The wealth owned by US households hit an all-time high last year, potentially signaling the start of an AI-fueled financial utopia.

What does this mean?

US households racked up 8% more wealth last year to reach a total of $156 trillion, according to the Federal Reserve. That doesn’t mean there’s more cash in everyone’s pockets, though. Most of that increase came from stocks, which ended up being worth $7.8 trillion more than the year before. Plus, with high interest rates turning affordable mortgages into a pipe dream, more Americans stuck to their homes instead of upgrading. That’s capped the number of homes on the market, forcing buyers to bid more and keep house prices high. In fact, the real estate market was worth some $2 trillion more by the end of the year – a win for homeowners.

Why should I care?

Zooming out: What goes up can come down.

The opposite of accumulating wealth is losing a job, and that’s a real risk for an increasing number of Americans. There were 9% more layoffs this February than at the same time last year, making it the worst month for new redundancies since the global financial crisis. Although, with the count of monthly jobless claims staying fairly steady, it seems that freshly unemployed Americans are finding new jobs lickety-split.

The bigger picture: Everything is AI’s fault.

AI’s effect on the US stock market is far from tailing off: the S&P 500 index is already up another 9% this year. There are worries, though, that automatic processes could start replacing human work, exacerbating the rate of layoffs over time. Dystopia isn’t the only option, of course, and AI tools could be used to enhance human productivity and company profits across the board, shining up stock prices and making most Americans richer in the long run.

What’s going on here?

The US economy added more jobs than expected in February, proving that keeping business on track – even while interest rates are going for the jugular – is all in a day’s work for the country.

What does this mean?

The US filled 275,000 jobs in February, 75,000 more than economists expected, which is a sign that the economy is still holding firm. At the same time, wages didn’t increase as much as expected. And because rising paychecks are a key driver of inflation, that combination points toward a healthy balance of economic growth and softening price rises. The only snag was that December and January’s job numbers were revised downward by 167,000, along with an unexpected pop in the unemployment rate. Still, the big-picture data suggests that the Federal Reserve (the Fed) may have struck the delicate balance between taming inflation through interest rate hikes without sacrificing the economy in the process – for now, anyway.

Why should I care?

For markets: Bring out the countdown clock.

One of the Fed’s favorite inflation gauges is sitting at 2.4%, only slightly above the 2% target. That’s a sign that inflation is headed in the right direction, which could explain why the Fed’s chairman said the central bank’s “not far” away from cutting interest rates. Not only would that make it cheaper to borrow money, stimulating the economy, but it would lift up stock valuations too – likely the reason why forward-thinking investors sparked a rally in the market recently.

The bigger picture: Beware the lure of the market.

The world’s most impressive investors have been tried and tested by the markets many times before. Ray Dalio has warned that the biggest mistake investors make is to believe what happened in the recent past is likely to persist. In other words, the market can switch up when you least expect it – so if you want to stay invested in case the rally keeps up, make sure you have a backup plan in place.