Investors agree that there are benefits in having diversification within a portfolio. Deciding how diversification should be achieved and to what extent to allow diversification allocations to have a dilutionary effect on a portfolio’s core investment allocation are among the most challenging choices investors have to make.
As investors are finding, there is a distinct lack of consensus on what the latter half of 2023 may bring. Expert opinion on where the S&P 500 will end the year include a pessimistic Morgan Stanley estimate of 3700 and a conservative Goldman Sachs estimate of 4500 (-14% to +3.5% from end-June levels, respectively).
A considerable amount of focus is being placed on the potential impact that AI could have on the future of the white-collar employment landscape. From writing code to writing reports, jobs that are the preserve of a very narrow definition of “intellect” are potentially under severe threat. This is because AI now offers the possibilities of doing these tasks faster, doing them as well as a human counterpart could, and possibly better (in that there is the potential for less error).
Did Elon Musk fire the first salvo of an AI data usage war? We are referring to his April 19, 2023, post “They trained illegally using Twitter data. Lawsuit time.” in relation to Microsoft’s use of Twitter data to train its AI model.
March has certainly been a turbulent month for US markets for various reasons, with the most pointed condensing around the fears of a banking crisis following the demise of SVB and Signature Bank. The VIX index crossed 25 for the first time in 2023, indicating how uncertainty has been ramping up. Or was it? The S&P 500 began the month at 3970.15 and it closed at 3971.27 at the time of writing on March 28. A 0.03% change is not particularly noteworthy!
The last few weeks of ChatGPT/Bing vs Bard chatter online and in the press has elicited an outpouring of commentary on AI.
Everything from “Sydney” the would-be home-breaker, to evil alter egos, to espionage on the AI’s creators has graced the media.
Just because a data stream is available to use as input in a quantitative model for making trading decisions for an AI-based investment strategy—and it is found to be spiking, whether up or down—does not make it usefully relevant for signaling when and how to trade, be it on an ongoing basis, or even over the short-term.
As US stock market investors watch 2022 draw to a close, the ‘big three’ global macro-economic factors that impacted volatility this year will still be at large in 2023: Inflation, Russia, and Covid. They will continue to drive hard-to-time downward volatility spikes in 2023, impacting, at a minimum, an investor’s short to mid-term risk-adjusted returns.
The sudden recent implosion of FTX provides an opportunity for investors to explore the importance of the role of human narrative in investment decision-making.
The recent political turmoil in the UK has been quite simply a horror show in terms of the damage to its international reputation as a stable reliable partner, particularly in relation to its financial system.