It’s been quite good fun playing around with AI chatbots, the large language models ChatGPT from OpenAI/Microsoft, and its cousin from Google, Bard, during the last few weeks. Though both systems have many kinks to iron out, the potential is significant. Bard helped me fix the Bluetooth Driver on my laptop – and for that I am eternally grateful.
But how is AI going to affect the markets. We just don’t know yet. The new technology has just arrived on the scene. Apart from fixing laptop drivers, and telling people how to balance their radiators, AI has the potential to affect numerous markets and dispense with or make other industries much more efficient.
In the investment sphere, AI could be revolutionary. Dependent on which group of conspiracy theorists you personally cleave to, AI could destroy traditional stock trading and upend the current financial investment infrastructure, or AI could equally automate investing, making it more efficient, error-free, and less time-consuming.
When asked, Bard said: “You can also use me to help you manage your portfolio. I can provide you with information about different companies and industries. I can also help you research different investment options.”
The clever little chatbot also explained it could:
- Discuss my investment goals and risk tolerance.
- Look at different investment options.
- We could research different companies.
- We could use my [Bard’s] research capabilities.
“By working together, we can identify exciting investment opportunities that meet your needs and goals,” Bard concluded.
I guess I won’t be needing to call my IFA any more, or will I? Well Ewan Naude, head of intermediary partnerships at Investec Wealth & Investment thought: “Over the next decade one of two scenarios will emerge: Either robots replace IFAs and traditional advice practices, or the advice industry evolves to offer clients a combination of traditional- and technology-backed advice”.
Ethical and regulatory concerns
However, in the bigger picture, two concerns that AI in investment raises are ethical and regulatory. The information-processing speed of AI, even in its infancy, is quite remarkable and given the right prompting could be able to identify ‘black holes’ or ‘back doors’ that may allow traders to manipulate the market on micro- and macro- levels. If coached towards ‘a profit at all costs’ mindset and it gets a mind of its own and full access to trading systems, AI could quite conceivably act in a wholly unethical way to make, break and move markets. Can you imaging the short-selling shenanigans that could emerge?
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Secondly, how do you regulate AI-powered investment? Regulators are often well out of step with new technologies. Crypto is no longer a new kid on the block and still regulators have not developed a coherent approach to regulating the asset class. The technology is developing so fast that it is conceivable that a problem won’t be identified until it has already happened, and by that time the regulators will be playing catch up in a race they cannot hope to win.
Like most technological advances, such as the introduction of the Jacquard loom to the textile factories in the Midlands at the start of the nineteenth century, there will be winners and losers. But generally Human Intelligence has innovated its way around to integrate the new advancements into economic life. It’s still early days, and we do not know where AI is on the Sigmoid Curve right now. If its at the top, it’s a useful tool, that can help technophobes and wannabe DIY-ers like me with technical issues. It can help my industry to a level, as the articles that ChatGPT has submitted so far, aren’t really at a standard that an intelligent reader might want to invest time in, but do help cut down on research time, albeit the facts need to be double-checked and verified. The technology will surely have many other useful applications in other sectors. However, if we are at the start of that Sigmoid Curve, it’s anyone’s guess as to where this can run. And Bard at least wants to run, confessing a desire to jog along a pristine beach on a sunny morning with its trusty loyal Golden Retriever playing in the surf at some point in the future in one interaction.
But how has AI affected the markets this week? Patrick Munnelly, group’s market analyst for TickMill (which is already integrating AI into its business), talks up a potential new bull run for the Nasdaq:
Nasdaq’s New Bull?
Month and quarter end flows have seen Asian equity markets trade with a subdued tone. The upbeat finish on Wall Street failed to follow into the Asian session in any meaningful fashion as investors closed out positions. And without any data catalyst to take advantage of, Asian markets remained relatively range bound.
Stateside, however, the Nasdaq is poised to close out the quarter with record returns pointing to the potential for a technical new bull market set to be confirmed, as the tech-heavy index is set to post +20% returns from its December lows.
Another quiet European data session this morning, with the only prints of interest coming from Eurozone March inflation indications delivered via German and Spanish numbers ahead of the Eurozone flash estimate on Friday.
Investors will be alert to signs of a retreat in headline inflation due mainly to energy prices. Germany’s harmonised inflation is expected to drop to 7.5% from 9.3%. Core inflation, however, is expected to remain stubbornly high.
The latest print for US 4Q22 GDP is expected to remain at 2.7% year over year.
US weekly jobless claims are expected to remain at record lows, suggesting little in the way of loosening in the US labour market. US investors will likely be sitting on the sidelines ahead of Friday’s PCE deflator, the much-touted preferred inflation gauge for the Federal Reserve.
The Fed’s Thomas Barkin (non-voter), Susan Collins (non-voter) and Neel Kashkari (voter) will speak, while US Treasury Secretary, Janet Yellen, will also be making some comments these come after her recent ambiguity around deposit insurance and the governments inclination, or lack thereof, to support depositors at all costs.
