Market comment 2023

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ChatGPT Plus users can now access 70+ plugins made by individual creators and companies like Instacart and Kayak. Here's how they work, and what you can do with them.

What Are ChatGPT Plugins? The Next Phase of Conversational AI Is Here | PCMag

ChatGPT is six months old, and it’s already starting to look outdated. That program and its cousins, known as large language models, mime intelligence by predicting what words are statistically likely to follow one another in a sentence. Researchers have trained these models on ever more text—at this point, every book ever and then some—with the premise that force-feeding machines more words in different configurations will yield better predictions and smarter programs. 

This text-maximalist approach to AI development has been dominant, especially among the most public-facing corporate products, for years. But language-only models such as the original ChatGPT are now giving way to machines that can also process images, audio, and even sensory data from robots. The new approach might reflect a more human understanding of intelligence, an early attempt to approximate how a child learns by existing in and observing the world. It might also help companies build AI that can do more stuff and therefore be packaged into more products..

ChatGPT Is Already Obsolete

• In a year from now this stuff will be ubiquitous..
  

Exchange traded funds focused on the artificial intelligence sector marched higher on Thursday, leading a handful of names to reach new monthly trading highs. Four funds that have noticed notable monthly highs include GX Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ), GX Artificial Intelligence & Tech ETF (NASDAQ:AIQ), Robo Global Artificial Intelligence ETF (NYSEARCA:THNQ) and the Artificial Intelligence and Robotics ETF (NASDAQ:ROBT). On Thursday, BOTZ jumped to a new 12-month high, AIQ climbed to a seven-month high, and shares of both THNQ and ROBT bumped up to a three-month trading high. Moreover, from a capital flow perspective, these four names together have been able to attract $215M in 2023. 

This is especially notable considering that, cumulatively, the four AI focused ETFs manage roughly $1.5B. Even as these funds have pushed higher, another AI-focused exchange traded fund hits the market. The Roundhill Generative AI & Technology ETF (CHAT) debuted on Thursday. WisdomTree highlighted in an investor note on Thursday: “The potential market for AI is enormous, as the technology has the potential to disrupt a wide range of industries. PWC estimates that AI could contribute up to US$15.7 trillion to the global economy by 2030, more than the combined output of China and India.”

AI ETFs set multi-month highs as the sector continues to garner attention | Seeking Alpha

Here are the 20 screened AI-related companies expected by analysts to have the highest compound annual growth rates (CAGR) for sales from 2023 through 2025. Sales estimates are in millions of U.S. dollars. The list also shows which of the above five ETFs holds each stocks.

20 AI stocks expected to post the highest compound annual sales growth through 2025

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Wall Street executives who have advised the Treasury's debt operations have warned that Treasury market dysfunction would quickly spread to the derivative, mortgage and commodity markets, as investors would question the validity of Treasuries widely used as collateral for securing trades and loans. Financial institutions could ask counterparties to replace the bonds affected by missed payments, said analysts. Even a short breach of the debt limit could lead to a spike in interest rates, a plunge in equity prices, and covenant breaches in loan documentation and leverage agreements. Short-term funding markets would likely freeze up as well, Moody's Analytics said.

How Wall Street is preparing for possible US debt default

But the S&P 500’s SPX surprising bust out of a range last week has opened up a debate on Wall Street about whether or not that move has any teeth to it. Morgan Stanley’s Mike Wilson, in our call of the day, sees a dangerous trap. “Last week’s price action showed signs of panic by investors who are afraid they’ll miss the next bull market. We believe this will prove to be a head fake rally like last summer’s for many reasons,” Wilson told clients in a Sunday note. “With the index showing some signs that it wants to break out, market internals are much less attractive today and leadership has changed dramatically,” he says. Read: How to invest in one of the hottest stock market sectors while cutting your risk For example, he sees not just the top 10-20 stocks looking expensive, but the S&P 500 median stock forward price/earnings [P/E] ratio at 18.3 times, and S&P 500 ex-tech median P/E at 18 — both within the top 15% of historical levels. Second, a “very healthy re-acceleration” is baked into second-half consensus forecasts for earnings, but Morgan Stanley’s forecasts “continue to point materially lower.” Wilson says their own model has been highly accurate over time and recently.

S&P 500's recent move higher is a trap for investors, warns Morgan Stanley - MarketWatch

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If you look at all the articles published and all the discussions had about the market, you would see one underlying similarity: Each and every one debates what will occur after the next piece of “news” is published. Whether we are speaking of CPI, PPI, employment, or other such similar reports, or whether we are speaking of the next Fed pronouncement or speech, or whether we are speaking of the next impending political development, the sense of certainty being presented by most regarding the market’s reaction to an impending event is what most of us read about or hear from pundits, analysts, or our brother-in-law. Yet, how many of you have actually gone back to review just how important those events or news announcements really were to the market? How many of you have done any research to see whether your views about what affects the market really was determinative of the next move made by Mr. Market?

Sentiment Speaks: Looking For The Next Shoe To Drop In The Market | Seeking Alpha

• News, even important economic news often doesn't have the impact you'd expect on the market..
  

Onto our call of the day from Prometheus Research, which sees promise in a strategy that’s bullish on stocks and bearish on commodities. “The combination of these bets is particularly interesting in a macroeconomic context— if they continue to trend, it will likely further current market pricing of disinflation,” says Prometheus, whose researchers use quantitative analysis to understand underlying mechanisms driving the economy that can indicate future market trajectories.

Stay bullish on stocks, bearish on commodities, says this quant strategy. - MarketWatch

• Market seems to price in a stronger deceleration of inflation than many seem to realize.
  

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The rollercoaster debt-ceiling talks are back at a stalemate amid a full-throated effort by the most conservative members of Kevin McCarthy’s caucus to preemptively kill any bipartisan deal. Influential Rep. Chip Roy (R-TX) told a right-wing host Tuesday night that “my position is to hold the damn line” and force a GOP-only plan into law, one of the many similar comments from Republicans in recent hours. “I don’t even care about the negotiations going on at the White House,” he added. 

The GOP's internal dynamics are having a direct effect on the talks. House Speaker Kevin McCarthy abruptly shifted his tone Tuesday just hours after optimistic comments in the Oval Office. Late Tuesday night, a lead member of McCarthy’s negotiating team told reporters that talks were now off unless they see “fundamental change” from the White House. Speaker of the House Kevin McCarthy (R-CA) talks with reporters about the debt ceiling negotiations on Tuesday, May 23. (Tom Williams/CQ-Roll Call, Inc via Getty Images) The conservative rebellion is a mirror of sorts to what President Biden is confronting on his left flank, with many Democratic lawmakers similarly skeptical of concessions.

 Debt-ceiling talks stall amid revolt from Kevin McCarthy’s right flank

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But then in March, OpenAI decided that it needn’t just be a service provider – it could also be a platform on which other companies could build businesses. So it published a set of application programming interfaces (API) that would allow developers to add a version of ChatGPT to their services (for a fee, of course) without having to sink shedloads of money into building and training their own language models. This was the step that more or less guaranteed that ChatGPT would, in due course, be everywhere. A good analogy is what happened with Google Maps. Way back in the mists of time, the Google co-founders decided that they would map the entire planet. It was a stupendously expensive and ambitious project, made possible only by the fact that their company had money to burn. But they did it, in the process creating one of the networked world’s most useful resources.

And now? Try booking a hotel, a restaurant, finding a garage, a sports venue, or almost anything else that has a geographical location, and under “location” on its website you find the relevant segment of a Google map, which is incorporated into the site using the company’s Maps Embed API. Something analogous is already beginning to happen with ChatGPT: in time, whenever you encounter a text box on a website or in an app, you’ll find yourself dealing with ChatGPT (or one of its digital peers) courtesy of an API. In this way, Pichai’s idea of “AI everywhere” will be realised, even if the AI in question isn’t particularly intelligent.

AI will be everywhere, but its rise will be mundane not apocalyptic | John Naughton | The Guardian

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While the debt-ceiling deal reached by President Biden and House Speaker Kevin McCarthy includes pretty mild spending curbs, one detail could pack a punch. News reports indicate that the deal will codify into law the Biden administration's planned end of the student loan payment freeze that has helped fuel spending over the past three years. That will likely deepen a spending slowdown at a time that growth already has slowed almost to a stall. Yet the Federal Reserve, after five percentage points of rate hikes, may step even harder on the brakes. After last Friday's hotter-than-expected PCE inflation report, Wall Street now thinks another rate hike is likely in June or July. 

Meanwhile, any debt-ceiling relief for investors will be fleeting because the stock market is about to lose its own fiscal support. The Treasury's inability to issue debt in recent months has more than offset Fed efforts to tighten financial conditions by unloading assets purchased during the Covid-19 pandemic. But Treasury issuance is about to surge following a deal to raise the debt ceiling. That means we're about to get Fed quantitative tightening on steroids...

Yet that understates the extent to which the payment pause for $1.3 trillion in student loans with a median balance of $18,773 has helped consumer finances. The average student loan payment was $393 per month for borrowers before the pandemic, Jefferies economist Thomas Simons notes. "Consumer balance sheets are already kind of exhausted at this point," Simons told IBD. With the added pressure from an end to the student-loan holiday, "We're setting up for a pretty significant rollover" for consumer spending in the second half of the year, he said...

Two of the last remaining Covid-era supports for household finances have now hit their end date. Emergency SNAP (Supplemental Nutrition Assistance Program) benefits recently expired. That amounted to a hit of $95 per month for eligible households, or nearly $50 billion per year. Medicaid income limits, suspended at the start of the Covid pandemic, are now returning. That could knock up to 17 million people out of the program over the next year, leaving them to find more costly insurance coverage, a Kaiser Family Foundation analysis finds.

Debt-Ceiling Deal Is Done. Recession And Stock Slide May Follow.

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Deutsche Bank strategists Jim Reid and Steve Caprio just wrote the bank’s annual default study, now in its 25th year. Last year’s, correctly, called for the end of the ultra-low default era, though the current numbers are certainly not terrible. The U.S. high-yield bond default rate through April rose to 2.1% from 1.1%, and U.S. loan default rates rose to 3.1% from 1.4%. Over in Europe, speculative-grade default rates rose to 2.7% from 1.7%. According to Fitch, the average U.S. high-yield default rate is 3.6%. But, the Deutsche Bank team say, “a default wave is imminent.” By the fourth quarter of 2024, they say the U.S. high-yield default rate will peak at 9%, and the U.S. loan default rate will reach 11.3%. The European speculative-default rate will rise too, though to a less steep 5.8%.

A default wave is building, says Deutsche Bank. Here's how bad it may get.

Stubbornly high inflation and higher borrowing costs are poised to drive the economies of the UK, Germany and US into recession, the leading rating agency Moody’s has warned. In a downbeat forecast for growth across advanced G20 economies, it said a ramping up of interest rates by central banks on both sides of the Atlantic was expected to weigh on economic growth this year. “We expect very weak growth in key advanced economies in particular, including mild recessions in the US, UK and Germany, and stagnant economic activity in France and Italy,” Moody’s said in a report.

UK and US poised to fall into recession as interest rates dampen growth | Recession | The Guardian

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For real-life evidence of the already highly destructive nature of climate change, you don’t need to be guided by the counterproductive bleatings of Greta Thunberg, Extinction Rebellion and Just Stop Oil. Ask the insurance industry instead. The average payout in claims over the first 10 years of the century was in the order of $50bn (£40bn) per annum. Since then, it has doubled to $100bn, and in 2022, it was an all-time record of $132bn. Part of the explanation is inflation, together with growing instances of shoddy workmanship in construction. 

But the overwhelming cause is climate change. Extreme weather events have grown steadily more frequent and destructive. The trend is undeniable, and if maintained will soon render large parts of the world uninsurable against wildfires, floods and hurricanes, if not outright uninhabitable. What we also know is that globally, emissions are still going up, not down, so it is highly likely that these trends will persist, and possibly accelerate.

Let’s worry about climate change, not the supposedly existential threat of AI

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Factories in the United States and across the eurozone reported a decline in new orders for manufactured goods in May as they worked through their backlog of orders, according to recent business surveys released by data firm S&P Global. It’s unclear for how long those backlogs, which swelled in the early days of the pandemic, will sustain the industry globally. S&P Global data showed that the US manufacturing sector fell into contraction territory in May. A similar survey released by the Institute for Supply Management showed the industry contracted for the seventh consecutive month in May, at a faster pace than in the prior month.

Manufacturing is sputtering in the world’s largest economies

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Last summer, in a meeting with business and labor leaders as Congress prepared to vote on the landmark Inflation Reduction Act, President Biden argued that it would result in “the largest investment ever in clean energy and American energy security — the largest in our history.” He added, “It will be the largest investment in American manufacturing as well.” Nine months since that law was passed in Congress, the private sector has mobilized well beyond our initial expectations to generate clean energy, build battery factories and develop other technologies to reduce greenhouse gas emissions. The law is doing exactly what it was designed to do: encourage private investment in clean energy.

The New Climate Law Is Working. Clean Energy Investments Are Soaring.

The U.S. solar industry enjoyed the most growth of any Q1 in its history in 2023, as supply chain constraints showed signs of loosening, and should triple in market size by 2028, with 236 GW of new capacity expected in the next five years. According to a report this week from Wood Mackenzie and the Solar Energy Industries Association, 6.1 GW of solar was installed across the U.S. in Q1, up 47% from a year earlier, and accounted for 54% of all new electricity generating capacity added to the grid during the quarter. Utility-scale projects jumped 66% Y/Y, thanks to a slight relaxing of module supply constraints that led some delayed projects from last year to finally come online, WoodMac said.

U.S. solar tallied best-ever Q1, with usage seen doubling in next five years | Seeking Alpha

A surge in manufacturing construction across the country is grabbing the attention of economists and workers on the ground as legislative efforts to reinvigorate the U.S. industrial base are bearing fruit. Experts say these changes have been long-awaited, and they represent a watershed moment for U.S. heavy industry and a shift toward more environmentally friendly methods of production amid an ongoing climate emergency. “We waited for so long to have these kinds of initiatives,” Miki Banu, a professor of mechanical engineering at the University of Michigan, told The Hill. “This is probably the first time in my life when I’ve seen so many resources become available, which are able to let us put our ideas into practice.” Annual spending on manufacturing construction held somewhat steady during the 2010s, generally keeping within the range of $50 billion to $80 billion, according to U.S. Census Bureau data. Levels were lower and the range of spending tighter in the decade before. But following the passage of three large-scale economic packages loaded with tax incentives and direct funding for industrial projects and operations, investment in manufacturing construction shot up to $189 billion in April on a seasonally adjusted basis, more than doubling pre-pandemic levels.

The Hill