For more than a month, the market has found itself in AI-fueled “doom loop,” flip flopping between fears that the hundreds of billions of dollars being spent on AI will not pay off and worries that industries from software to wealth management and logistics will be rendered obsolete by the same technology.
Bloomberg writes that before yesterday the Magnificent Seven was down 8.2% for the month as compared to a 3.2% decline for the NASDAQ and 1.03% gain for the Dow Jones.
Bloomberg further writes that S & P 500 is flat for the year as MSFT is the biggest drag on this benchmark. Its 76-point drop has offset what the top seven gainers have delivered. “Collectively the Magnificent Seven have lopped 153 points off the index’s performance, erasing the positive contribution of 22 constituents.”
Many have discussed the concentration of funds in just 10 names one sector…several weeks ago 40% of the S & P 500 was in just 10 stocks and 1 sector thus suggesting the remaining 60% of the S & P 500 was comprised of 490 companies and 10 sectors.
If these 10 stocks do not perform, the odds of the indices rising in value are reduced. Is this what is occurring today?
Changing topics, many have also commented the statistics that measure economic activity are perhaps flawed, that they have not been adjusted or changed to reflect today’s economy. [Note: this statement does not suggest there is malfeasance…it suggests that economy has changed but the measuring guide posts have not—there is the lack of nefarious activity]
Again quoting Bloomberg, “the US Health Insurance Price Index within the CPI, measured by the BLS, shows health insurance down 20% over the last five years, thus suggesting there are some methodological flaws.” All would be pressed to know someone whose medical insurance costs have been down 20% over the last five years.
The data is used to formulate assumptions, hence investing decisions. If the data is flawed, the assumptions are also flawed thus the odds of a possible conclusion are also flawed. Is this a reason as to why the Federal Reserve and most major Wall Street banks have consistently missed their economic forecasts over the last five to ten years?
Commenting on yesterday’s activity, a slew of data indicated the economy is doing well and easing jitters around AI permitted a modest 1% advance. About 350 issues rose.
The Treasury yield curve was nominally flattening until the Minutes from the recent FOMC meeting was released. The minutes indicated that some officials had renewed concerns over inflation suggesting that the Central Bank may need to raise interest rates if inflation stays above its goal. The yield curve steepened by the same amount it had flattened earlier in the day.
What will happen today?
Last night the foreign markets were mixed. London was down 0.66%, Paris down 0.81% and Frankfurt down 0.87%. China was down 1.26%, Japan up 0.57% and Hang Seng up 0.52%.
Futures are down about 0.25% on Iranian tensions and a cautionary outlook from Wal-Mart. The 10-year is off 2/32 to yield 4.10%.
