Morning Briefing | How AI Will Disrupt the Investing World
Nvidia joins the AI party. Leading chipmaker Nvidia (NVDA) briefly surpassed a $1 trillion market valuation on Tuesday, driven by its strong prospects in artificial intelligence ("AI"). This places Nvidia in an exclusive group of only five American companies that have reached such a valuation, including Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), and Microsoft (MSFT). Nvidia has emerged as a frontrunner in the AI industry, exemplifying Wall Street's current preoccupation with AI. The company has become the largest producer of the specialized chips needed to power the next generation of AI products.
Goldman's looking at third round of job cuts. Investment bank Goldman Sachs (GS) is reportedly considering another round of layoffs due to a subdued dealmaking environment that has impacted revenues across Wall Street. According to individuals familiar with the matter, the bank is in the early stages of planning its next round of job cuts, but it should take place within a year. In September, the firm eliminated several hundred positions. This was followed by a significant round of layoffs in January, resulting in approximately 3,200 job losses.
U.S. confidence falls. U.S. consumer confidence dropped to a six-month low as sentiment on the current state of the labor market and business conditions deteriorated. The Conference Board's index decreased to 102.3 in May, down from a revised 103.7 in April. And the number of consumers who said jobs were "plentiful" reached its lowest point in over two years.
Fed's Barkin looking for easing demand. Federal Reserve Bank of Richmond President Thomas Barkin said he'd be further convinced that inflation is easing if he saw more prevalent signals of weakening economic demand. During a virtual event organized by the National Association for Business Economics, Barkin said that although price growth has slowed to some extent, he still believes inflation is too high.
Wage growth may not be driving inflation. A new analysis conducted by the Federal Reserve Bank of San Francisco suggests that rapid wage growth has not played a significant role in driving inflation. According to San Francisco Fed economist Adam Shapiro, the recent increase in the Employment Cost Index can only account for around 0.1 percentage points of the three-percentage-point rise in consumer price inflation (excluding food and energy). Shapiro noted that wage increases may be a response to inflationary pressures rather than a primary driver of inflation itself. This suggests there might be a more complex relationship between wages and price increases.
Prices and optimism are declining in Europe. A recent report released by the European Commission showed that consumers' price expectations have fallen to the lowest since 2020. The report also highlighted a decline in expectations for businesses' pricing abilities over the next three months, with sectors like construction and retail showing sustained price drops. Overall, the report reflects a challenging economic situation in the eurozone. However, decreasing price expectations and a decline in overall confidence should provide a more favorable environment for the central bank to end rate hikes.
A Japanese bull market. Bank of America (BAC) predicts that Japanese stocks could reach their all-time high as early as the first half of 2025, hitting levels last seen in the 1989 Bubble Economy. This projection is based on an inflationary regime and recent valuation reforms in the Tokyo Stock Exchange. Strong interest from foreign investors, solid corporate earnings, and a weak yen are all contributing to this optimism and should continue to boost the Topix Index, the broad benchmark for Japanese stocks.
French inflation has peaked. Bank of France Governor Francois Villeroy de Galhau said the rate of consumer price increases in the country has likely surpassed its peak. He also stated that inflation is expected to decline in France from now until the end of the year, although the decrease might not be sufficient to alleviate all concerns.
Today in Stansberry NewsWire, we're sharing our weekly "mailbag."
In it, we include responses from our readers submitted by noon the prior Friday. Remember, you can...
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Respond to or ask questions about something we've written,
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Ask us to cover a topic you find interesting, and
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Share your thoughts on what's most important to you when it comes to financial news.
As always, please submit all thoughts, questions, and commentary to new@stansberryresearch.com for your chance to be featured in next week's mailbag.
This week, we're highlighting a question from Jim E. He asks...
Isn't [artificial intelligence] going to totally disrupt the way that one invests in the stock market?
Kevin's Response
When we first introduced the idea of a weekly mailbag, questions like Jim's were exactly what we were hoping to see...
After all, at Stansberry NewsWire, we want to help our readers address the changes taking shape in our world, especially when those changes have the potential to move markets. Whether it be new government policy or a new technology coming to market, we're here to talk about it.
(So, Jim, thank you for the question.)
Now, when change comes, say, in the form of "intelligent" computers... it can be abrupt and it can be disruptive.
And in most cases, disruptive has a negative connotation.
But, as I'll explain, disruptive technology like artificial intelligence ("AI") can actually be a good thing.
You see, AI changes the way consumers, businesses, and even entire industries operate. It's used everywhere from your iPhone to your child's classroom to the hospital down the street.
And today, it's making big moves in the investing world as well...
According to tech website Built In, AI investing is "the use of artificial intelligence, predictive analytics, and machine learning to analyze historical market and stock data, get investment ideas, build portfolios, and automatically buy and sell stocks."
With the help of AI technology, investors can...
- Monitor the stock market 24 hours a day
- Analyze millions of data points to execute trades at the optimal price
- Forecast market moves accurately and efficiently to mitigate risk
- Identify reasons behind price fluctuations
- Select investing strategies with the highest chance of delivering returns
AI investing is a new concept to many, and it makes sense for folks to be wary. But the reality is that it's already being utilized by financial institutions, hedge funds, and individual investors all over the country.
One form of AI investing that's already in use is algorithmic trading...
In fact, in institutional trading, most trades are executed by algorithms. Mordor Intelligence reports that 60% to 73% of equity trading in the U.S. is algorithm-based. And Bloomberg Intelligence's 2021 U.S. Institutional Equity Trading Study found that 48% of all funds reported increased usage in algorithm-based trading in 2020.
As I mentioned earlier, disruption can be a good thing. And AI's disruption into how one invests will likely have more benefits than drawbacks.
Here are just a few ways in which AI will improve stock market investing...
Data analysis and prediction: AI systems can analyze vast amounts of financial data, news articles, social media sentiment, and other relevant information to identify patterns, trends, and correlations that humans may miss. This can help investors make more informed investment decisions and predict market movements.
Algorithmic trading: AI-powered algorithms, which we mentioned earlier, can execute trades at high speeds and volumes and take advantage of market inefficiencies and short-term fluctuations. These algorithms move faster than human traders, responding to market conditions in real time.
Risk assessment and portfolio management: AI algorithms can assess risk factors and optimize investment portfolios based on predefined objectives, risk tolerance, and historical market data. They can also perform stress testing and scenario analysis to evaluate potential outcomes in different market conditions.
Sentiment analysis: AI systems can analyze data from news articles, social media posts, and blogs to understand market opinion. This helps investors gauge market sentiment and predict future trends on specific stocks or sectors.
Fraud detection and compliance: AI technology can assist in detecting fraudulent activities, market manipulation, and insider trading by analyzing vast amounts of financial data and identifying suspicious patterns or anomalies. It can also use biometric authentication (like facial recognition) to ensure only you have access to your financial accounts.
So, yes... AI investing will absolutely disrupt the investing world.
It will help improve decision-making, automate and expedite processes, help manage portfolio risk, and uncover new investment opportunities.
And while AI does offer significant benefits in stock market investing, it's important to note that it's not necessarily a perfect solution...
AI systems are not infallible and can be subject to biases, incorrect data interpretations, and unforeseen risks.
Investment decisions still require careful consideration, human judgment, and expertise.
Thanks again for the question, Jim E.
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