2023, 2024, 2025, and First Half 2026 (year-to-date through July 4)<\/strong><\/p>\n\n\n\n
![\"Global](\"https:\/\/blog.uwsp.edu\/cps\/wp-content\/uploads\/sites\/2\/2026\/08\/20260730a.jpg\")
<\/a>Artificial intelligence has been a key driver of global and U.S. stock market gains. The table below compares the index returns for the S&P 500, the Morningstar Global Artificial Intelligence Select Index<\/em>, and the Nasdaq Composite Index for 2023, 2024, 2025, and the first half of 2026 (year-to-date through July 4).<\/p>\n\n\n\n The Morningstar Global Artificial Intelligence Select Index<\/em> includes stocks of 48 major companies with exposure to generative AI, AI data & infrastructure, AI software, and AI services. The Nasdaq Composite Index includes over 2,500 stocks and is a key indicator of tech sector stock market performance. The Nasdaq has significant exposure to AI, but is not an exclusive AI index. Although not an AI or technology index, the S&P 500 has significant exposure to AI and technology. The S&P 500 is a market capitalization weighted index, meaning that the greater the market capitalization of a company then the greater its percentage weighting in the S&P 500. Market capitalization is the total stock value of a company (shares outstanding times the stock price). As of early July, five tech-heavy stocks with AI exposure comprise over 25 percent of S&P 500 market capitalization (total stock value): 1) Nvidia, 2) Apple, 3) Alphabet, 4) Microsoft, and 5) Amazon. The Nasdaq Composite is also a market capitalization weighted index.<\/p>\n\n\n\n In each year, the Morningstar Global Artificial Intelligence Select Index <\/em>significantly outperformed the Nasdaq Composite and S&P 500. In each year, the Nasdaq Composite outperformed the S&P 500.<\/p>\n\n\n\n Index Performance \u2013 Morningstar Global AI Select, Nasdaq Composite, and S&P 500<\/strong> The AI investment boom and ever-expanding optimism drove increases in the Morningstar Global Artificial Intelligence Select Index<\/em> of 75.27 percent and 34.78 percent in 2023 and 2024, respectively, with another 30.84 percent increase in 2025. In the first half of 2026, the index rose again, spiking 48.94 percent. The returns of the Morningstar Global Artificial Intelligence Select Index<\/em> dwarfed the S&P 500 returns of 24.23, 23.31, 16.39 and 9.32 percent in 2023, 2024, 2025, and the first-half of 2026, respectively. The Nasdaq returns were superior to the S&P 500 but significantly less than the Morningstar Global Artificial Intelligence Select Index. The <\/em>Nasdaq was up 20.36 percent in 2025, following increases of 43.42 percent and 28.64 percent in 2023 and 2024, respectively. In the first-half of 2026, the index rose 11.15 percent.<\/p>\n\n\n\n In May 2026, the term of Jerome Powell as Chairman of the Federal Reserve ended. He had held the position since 2018. Kevin Warsh became the new Chairman of the Federal Reserve after being nominated by the President and confirmed by the Senate.<\/p>\n\n\n\n The Federal Reserve System is the central bank of the United States and was created by an act of Congress that was signed into law by President Woodrow Wilson on December 23, 1913. The Federal Reserve System consists of a Board of Governors and 12 regional Federal Reserve banks located in major cities throughout the nation. The Board of Governors is a central, independent governmental agency, and led by the Chairman of the Federal Reserve. The Board consists of seven members appointed by the President and confirmed by the Senate, serving staggered 14-year terms. The Chairman of the Federal Reserve serves a four-year term after being nominated by the President and confirmed by the Senate.<\/p>\n\n\n\n The Federal Reserve conducts monetary policy, including the setting of interest rate levels, through the Federal Open Market Committee (FOMC). The FOMC consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Federal Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year and determines the appropriate level of interest rates based on a review of economic and financial conditions. Meetings of the FOMC include the seven members of the Board of Governors and all twelve Federal Reserve Bank presidents. The diversified geographical background of the nineteen leaders provides a broad discussion of economic and financial conditions across the country in determining monetary policy and interest rate levels. However, only the twelve members comprising the FOMC will vote on the appropriate level for interest rates and any changes. Interest rates are not<\/em> unilaterally set by the chairman of the Federal Reserve; the FOMC votes on the implementation of any interest rate change. The chair guides the FOMC to try and reach a consensus regarding interest rate policy, but the chair\u2019s vote only has the same weight as other FOMC members.<\/p>\n\n\n\n The Federal Reserve is the key driver of short-term interest rates in the United States economy through its monetary policy, which is implemented primarily through targeting the federal (fed) funds<\/em> rate. The fed funds rate is the overnight borrowing rate between banks, a very short-term interest rate that when changed, typically has a rippling effect throughout financial markets. The Federal Reserve influences the fed funds rate primarily by controlling the money supply in the United States. The amount of money circulating in the economy has an impact on interest rates and credit conditions – more money, lower interest rates; less money, higher interest rates. Changes in the fed funds rate generally affect savings and borrowing rates, although the Federal Reserve\u2019s monetary policy is not the only factor that influences savings and borrowing rates.<\/p>\n\n\n\n The Federal Reserve, since 1977, has had a dual mandate of achieving maximum employment and price stability. To achieve these goals, the Federal Reserve has acted in a nonpartisan, independent manner to balance economic growth (which affects employment) with inflation. Lower interest rates can increase consumer and business spending which fuels economic growth and boosts employment. However, too much economic growth, or economic growth when the economy is near full employment, can increase inflation. Higher interest rates can lower economic growth by reducing interest rate sensitive consumer and business spending, which generally lowers the demand for products and services and consequently inflation.<\/p>\n\n\n\n To achieve price stability, the Federal Reserve has stated that an inflation rate of 2% over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Fed’s price mandate. While the Federal Reserve has defined price stability, defining exactly what maximum employment is in terms of an absolute number is not easy. However, it became clear in the latter stages of the economic recovery in the last decade that an unemployment rate hovering around 3.5% could be sustained without leading to excessive inflation. In reality, it has been very difficult in recent history to move the unemployment rate below 3.5%, as there will always be a mismatch to some degree between the abilities of people looking for work and the skills required for available jobs.<\/p>\n\n\n\n The Federal Reserve cut interest rates three times in 2025, beginning in September. 2025 was a challenging year for the Federal Reserve, as the uncertainties of the impact of tariffs on inflation contrasted with a softening labor market, created a dilemma for the direction of Federal Reserve policy. In September, in response to the softening labor market, the Federal Reserve implemented its first rate cut of the year, lowering the fed funds rate by 25 basis points to a target range of 4.00-4.25. Two more 25-basis point cuts occurred in October and December, lowering the fed funds target range to 3.50-3.75.<\/p>\n\n\n\n No interest rate cuts occurred in the first half of 2026; the fed funds rate remained at 3.50-3.75. The Federal Reserve Open Market Committee will next meet in late July to discuss interest rate policy. Despite President Trump indicating that he favors more interest rate cuts, the Federal Reserve has been reluctant to cut interest rates further, as the combination of tariffs and spike in energy costs due to the Iran war contributed to inflation consistently exceeding the Fed\u2019s target 2% level in the first half of 2026. The graph below shows the annualized rate of inflation as measured by the twelve-month price change in personal consumption expenditures and the unemployment rate for each month since 2024. Although the unemployment rate has steadily remained slightly above 4%, the spike in inflation in 2026 to over 4% prompted the Fed to keep interest rates unchanged.<\/p>\n\n\n\n Inflation \u2013 Personal Consumption Expenditures and Unemployment Rate<\/strong> The financial markets have generally viewed the ability of the Federal Reserve to operate independently, without interference from Congress or the President, as critically important to the long-term growth of the United States economy and financial market performance. Given the change in leadership that occurred at the Federal Reserve in May, uncertainty remains regarding objectives, policies, and administration of the Federal Reserve.<\/p>\n\n\n\n For further information:<\/strong><\/p>\n\n\n\n
2023, 2024, 2025, and First Half 2026 (year-to-date through July 4)<\/strong><\/p>\n\n\n\n<\/a>The Federal Reserve and Interest Rates<\/h5>\n\n\n\n
January 2024 \u2013 June 2026<\/strong><\/p>\n\n\n\n<\/a>\n
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