April marks Niladri “Neel” Mukherjee’s one-year anniversary as chief investment officer of TIAA Wealth Management. To celebrate the milestone, Mukherjee has been crisscrossing the country, meeting with over 200 TIAA wealth clients at a half dozen company events.

His biggest takeaway from all these conversations?

“Everyone is wondering and worrying about the same things,” Mukherjee writes in the April editionOpens pdf of the CIO Perspectives newsletter. “The rocket scientist in Pasadena asked me virtually the same question about artificial intelligence (AI) as the law professor in Washington, D.C.” 

Six questions came up repeatedly, and Mukherjee does a deep dive into all of them in this month’s CIO Perspectives. You can read the full report hereOpens pdf. A summary of his answers to the three most-asked questions follows below:

Q: How will the economy impact the election?

Inflation continues to be top of mind for American voters, Mukherjee says. Historically, U.S. politics and inflation have been linked, with inflation causing major headaches for incumbent presidents. While inflation has slowed over the past 18 months—from 9% in mid-2022 to 3% by year-end 2023—prices are still up 20% overall since early 2020. The increase is more pronounced for groceries (+25%) and vehicles (+22%).

The so-called Misery Index (inflation rate plus unemployment rate) has been a reliable gauge of voter attitudes toward the economy. The higher the Misery Index, the worse it tends to be for incumbents. Since 1960, the average reading of the Misery Index in January of presidential election years has been 9. In the years the incumbent party ultimately lost the White House (1960, 1968, 1976, 1980, 1992, 2000, 2008, 2016, 2020), the January Misery Index averaged 10—or slightly above average. In January 2024, the Misery Index stood at 7, which was below the average reading when the incumbents lost and well below the four-decade high of 15 during the pandemic.

The current Misery Index reading would suggest an advantage for President Biden in 2024 (see chart).

Q: When will the Federal Reserve start cutting rates?

Mukherjee thinks the Federal Reserve will likely start cutting rates in the second half of this year, but the Fed’s stance prevents him from offering a more precise prediction. In March, Fed Chair Jerome Powell testified to Congress that the Fed would not cut rates until it has “confidence that inflation is moving sustainably to 2%.”¹

“Let’s just say I’m confident the Fed isn’t yet confident,” Mukherjee writes. “The latest economic reports have been too inconsistent. Stray data points will need to coalesce into clear trend lines before the finally Fed acts.” Consider the February jobs report. On the one hand, the economy created 275,000 new jobs, significantly more than the 198,000 economists were predicting. On the other, the unemployment rate rose unexpectedly, to 3.9% from 3.7%.² “No wonder Powell told Congress the economic outlook is ‘uncertain,’” Mukherjee says.

Q: Should I invest in AI?

Short answer is yes, according to Mukherjee, as long as you’re not straying from your asset allocation. 

Even though two recent AI launches—Google’s Gemini chatbot and Microsoft’s AI-enabled Bing—have failed to live up to expectations, AI investors are still being rewarded. AI-related enthusiasm surrounding the so-called Magnificent 7—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla (yes, one of theseOpens in a new window is not like the others)—has propelled the overall stock market to new highs in 2024. The Magnificent 7 have returned an average of 18% this year³ while Standard & Poor’s 500 Index has returned 10%.⁴ Most TIAA managed account clients already have exposure to AI stocks, so those accounts aren’t missing out.

Going forward, Mukherjee’s team sees two potential evolutions that could impact AI investment strategies:  

• Thus far, “AI enablers”—the companies building AI directly or providing behind-the-scenes infrastructure—have fueled most of the buzz. But over the course of the next 18 to 24 months, Mukherjee’s team foresees a shift from buzz around enablers to buzz around “AI adopters”—companies deploying AI to cut costs or expand sales. This transition will take time, but it could be a big story in late 2024 and 2025.
• The AI sector currently has few guardrails in place to safeguard privacy or protect intellectual property. This will create a unique opportunity for companies offering a class of awareness-based tools focused on “AI detection.”

Click hereOpens pdf to read the full CIO Perspectives for April.