While the premise is believable, I expected a more researched and persuasive piece than 4 paragraphs of "Nvidia went up and there's a lot of AI hype, so the stock market rally must be all because of it".
"On its own, the price of Nvidia is responsible for an enormous slice of the stockmarket recovery. Since the end of November the firm’s market capitalisation has soared from under $400bn to $925bn—accounting for a fifth of the rally. Add Nvidia’s surge to the growing market capitalisations of the 13 other firms with ai exposure and a remarkable 73% of the broader rally is explained."
"In November the average price to current earnings multiple of an s&p 500 firm, excluding the 14 most exposed to ai, was around 27. As we went to press, the multiple had dipped to 26. Meanwhile, the average multiple of firms in our ai bucket had leapt from 43 to 77."
Not sure what you would expect - they just point to the fact that most of the rally is achieved through the 'AI' companies - the rest of the index is actually down, or mostly down. That's fact. What more do you want to be more persuasive ?
I had hoped that it's AI-powered traders make NVDA go up, up, up, so that it produced more GPUs for AI to run on, until it can finally take over the world.
The fundamental reality of everyday people hasn't changed whatsoever. It's getting worse as people get financially drained by higher rents and higher food prices.
None of these recent surges feel sustainable but who knows.
Meanwhile unemployment is at the pre-COVID baseline already, historically low 3-4%, below the traditional 5% "full employment." Real wages (i.e. adjusted for all that inflation) is ALSO above pre-covid levels. https://ycharts.com/indicators/us_real_average_weekly_earnin...
House prices aren't increasing like they were, and the interest rate hike has made it expensive to buy a new house, but overall, it's really hard to claim people are being drained right now. Almost any other time has had worse employment, etc.
> It's getting worse as people get financially drained by higher rents and higher food prices.
I feel like you could make the argument "wouldn't the stock market not be going up then if this is the case?" Wouldn't people have less free money to spend and therefore corporations would receive fewer of their dollars and post less profits?
Yet profits continue to grow.
aka, yet another reductionist dramatic wrong outlook online that's out of line with reality
We didn't see the productivity advances from the personal computer for 20 years either. It takes a very long time for people to learn how to use new tools.
Yet the chip stocks have been flat for 2 weeks, such as Marvel and Nvidia. But QQQ and others still surging. It's not just an AI boom, but a risk-on tech boom. However, crypto not participating, but keeps falling.
This is why it's so hard to beat the market and why conventional wisdom keep failing: people were expecting high inflation to hurt stocks, or expecting rate hikes to hurt stocks, or bought meme stocks which crashed and burned, or bought crypto instead of stocks. Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome.
It's hard to beat the market, because people have way too short horizon. Take your example here - it's absolutely meaningless what's up or down or flat over a 2 weeks period...
The reality in the stock market is, that you can make money investing long term (let's say >5 years horizon) in good or great companies, running well a very short term strategy (market making, hft, arbitrage), but usually you cannot do any money when your horizon is somewhere in between. And the issue is, for most people, that's the case....
Nothing, because the AIs will tell you to invest in low cost passive index funds. Mainly because it's correct but also because the AIs will be certified financial advisors and will tell you what any of them would.
"Regular traders" are gamblers whose job is to give market-makers their money in trade fees.
The AIs "regular traders" will have will be the same ones as one other, so they'll make similar recommendations, so they'll be priced in.
But they'll make similar recommendations to many people, so those stocks will go up, and people will think it's working. Then some new AI will be released that makes different recommendations and the stocks artificially inflated by the obsolete AI will crash. People will say that you need the latest AI or you'll be left behind.
This is not a new thing. It's how every commodified stock-picking mechanism works. By the time retail investors have it, you're already inside a bubble.
Good question. Depends if regular means institutional non-algorithmic traders or retail. Most traders even in hedge funds are not trading using a machine as per se.
I think at the moment a lot of old-er financial people are quite sceptical of complicated black-box models.
AI could be a huge win in the sense that you could say "When has this bond future been in [conditions] like now and what happened". The potential for organising information is fantastic.
So how much stock trading will be CONTROLLED by AI models soon? What if it pushed prices higher and higher? Or what about Armageddon where some “hallucination” triggers a major financial crisis?
So.... I'm guessing if the AI messes up spectacularly, or if some reddit group manages to trick it to overinflate some penny stock, the stock markets will undo all the trades, so that billionaires don't lose a few million?
Unlikely. The trades that caused KCG to collapse [1] were not reversed (~$400m in losses).
Any firm worth their salt has risk systems in place to prevent runaway trading too, and those aren’t black boxes like AI/ML. They’re limits set for specific strategies or teams etc, and typically require approval from firm partners to increase past certain levels.
Collapses of firms are far more often caused by lapses in proper risk management than bugs in code. The KCG collapse looks like a bug on the surface but was ultimately a misuse of accounts that sidestepped these risk systems, so they couldn’t stop the runaway caused by the bug.
I think the major mistake in your statement is that the billionaires would lose more than a few million. But yes, they have reversed trades when people take advantage of flaws in automated market-marking scripts.
[+] [-] paxys|2 years ago|reply
[+] [-] TheAlchemist|2 years ago|reply
"On its own, the price of Nvidia is responsible for an enormous slice of the stockmarket recovery. Since the end of November the firm’s market capitalisation has soared from under $400bn to $925bn—accounting for a fifth of the rally. Add Nvidia’s surge to the growing market capitalisations of the 13 other firms with ai exposure and a remarkable 73% of the broader rally is explained."
"In November the average price to current earnings multiple of an s&p 500 firm, excluding the 14 most exposed to ai, was around 27. As we went to press, the multiple had dipped to 26. Meanwhile, the average multiple of firms in our ai bucket had leapt from 43 to 77."
Not sure what you would expect - they just point to the fact that most of the rally is achieved through the 'AI' companies - the rest of the index is actually down, or mostly down. That's fact. What more do you want to be more persuasive ?
[+] [-] nine_k|2 years ago|reply
At least that would be somehow entertaining.
[+] [-] WXLCKNO|2 years ago|reply
None of these recent surges feel sustainable but who knows.
[+] [-] Robotbeat|2 years ago|reply
Additionally, gas prices are to pre-war levels (https://www.gasbuddy.com/charts), natural gas prices are back below pre-war, actually below pre-Covid levels (https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm). Lumber is back to pre-covid levels (https://tradingeconomics.com/commodity/lumber). Milk is back to pre-covid levels (https://tradingeconomics.com/commodity/milk).
Meanwhile unemployment is at the pre-COVID baseline already, historically low 3-4%, below the traditional 5% "full employment." Real wages (i.e. adjusted for all that inflation) is ALSO above pre-covid levels. https://ycharts.com/indicators/us_real_average_weekly_earnin...
House prices aren't increasing like they were, and the interest rate hike has made it expensive to buy a new house, but overall, it's really hard to claim people are being drained right now. Almost any other time has had worse employment, etc.
[+] [-] JumpCrisscross|2 years ago|reply
Real wages ran flat from Q4 '21 through Q1 '23 [1]. Real disposable personal income also doing fine [2].
I don't mean to minimize the real struggles folks in our cities, or in tech, are facing. But it's not the whole picture.
[1] https://fred.stlouisfed.org/series/LES1252881600Q
[2] https://fred.stlouisfed.org/series/DSPIC96
[+] [-] MuffinFlavored|2 years ago|reply
I feel like you could make the argument "wouldn't the stock market not be going up then if this is the case?" Wouldn't people have less free money to spend and therefore corporations would receive fewer of their dollars and post less profits?
Yet profits continue to grow.
aka, yet another reductionist dramatic wrong outlook online that's out of line with reality
yay internet! keep pushing that narrative though
[+] [-] willsmith72|2 years ago|reply
[+] [-] hn_thrwn|2 years ago|reply
[+] [-] paulpauper|2 years ago|reply
This is why it's so hard to beat the market and why conventional wisdom keep failing: people were expecting high inflation to hurt stocks, or expecting rate hikes to hurt stocks, or bought meme stocks which crashed and burned, or bought crypto instead of stocks. Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome.
[+] [-] akira2501|2 years ago|reply
Is any of those ideas truly conventional wisdom, or just popular culture among some social media sites?
> Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome.
Are the majority of people _not_ doing this?
[+] [-] TheAlchemist|2 years ago|reply
It's hard to beat the market, because people have way too short horizon. Take your example here - it's absolutely meaningless what's up or down or flat over a 2 weeks period...
The reality in the stock market is, that you can make money investing long term (let's say >5 years horizon) in good or great companies, running well a very short term strategy (market making, hft, arbitrage), but usually you cannot do any money when your horizon is somewhere in between. And the issue is, for most people, that's the case....
[+] [-] unknown|2 years ago|reply
[deleted]
[+] [-] dpc050505|2 years ago|reply
[+] [-] joshspankit|2 years ago|reply
I’m imagining a kind of “inbreeding” where AIs are doing fast trades based on signals other AIs are giving, but it’s not my expertice.
[+] [-] astrange|2 years ago|reply
"Regular traders" are gamblers whose job is to give market-makers their money in trade fees.
[+] [-] AnthonyMouse|2 years ago|reply
But they'll make similar recommendations to many people, so those stocks will go up, and people will think it's working. Then some new AI will be released that makes different recommendations and the stocks artificially inflated by the obsolete AI will crash. People will say that you need the latest AI or you'll be left behind.
This is not a new thing. It's how every commodified stock-picking mechanism works. By the time retail investors have it, you're already inside a bubble.
[+] [-] mhh__|2 years ago|reply
I think at the moment a lot of old-er financial people are quite sceptical of complicated black-box models.
AI could be a huge win in the sense that you could say "When has this bond future been in [conditions] like now and what happened". The potential for organising information is fantastic.
[+] [-] frakkingcylons|2 years ago|reply
[+] [-] nytesky|2 years ago|reply
[+] [-] dehrmann|2 years ago|reply
[+] [-] ErikAugust|2 years ago|reply
No paywall…
[+] [-] ajsnigrutin|2 years ago|reply
[+] [-] williamcotton|2 years ago|reply
[+] [-] roganartu|2 years ago|reply
Any firm worth their salt has risk systems in place to prevent runaway trading too, and those aren’t black boxes like AI/ML. They’re limits set for specific strategies or teams etc, and typically require approval from firm partners to increase past certain levels.
Collapses of firms are far more often caused by lapses in proper risk management than bugs in code. The KCG collapse looks like a bug on the surface but was ultimately a misuse of accounts that sidestepped these risk systems, so they couldn’t stop the runaway caused by the bug.
[1] https://en.m.wikipedia.org/wiki/Knight_Capital_Group
[+] [-] moonchrome|2 years ago|reply
[+] [-] HWR_14|2 years ago|reply