AI Revolution
As we approach the halfway point in the year, the most prevailing headline for 2023 thus far has been the rise in Artificial Intelligence (AI). We closed out 2022 with technology stocks in a bear market, higher interest rates, sticky inflation and pessimism about the overall economy. While some of these concerns are still top of mind for investors, the evolution of AI and its uses in the economy has been the silver lining that has brought optimism to economic growth. Companies that have AI applications have shot up in price with many CEOs uttering “AI” as much as they can on an earnings call. On Nvidia’s most recent earnings report, they used that acronym 75 times throughout the call!
AI has rapidly emerged as a transformative technology with the potential to revolutionize various aspects of our lives, including the economy. From automation and improved productivity to advanced data analysis and personalized experiences, AI is set to reshape industries and drive economic growth.
(Statista)
The chart above shows the projected increase in productivity due to AI in selected economies by 2035. While there is much talk about this new technology and its use cases, it bodes well for investors and workers to take time to learn more about this new technology to see how it can help increase your personal productivity and investment decisions.
The US Dollar & International Investments
One of the many storylines in 2022 was the strength of the US Dollar. Since its peak in September 2022, we have seen a decline in the greenback which has helped international markets. Below is a chart of the US Dollar and the MSCI World Ex USA Index over the past year.
Generally, there is a tendency for an inverse correlation between the USD and international equity indices such as the MSCI World ex USA Index. When the USD strengthens, it can make foreign investments relatively more expensive for US investors, leading to a potential decrease in demand for international stocks and a decline in the MSCI World ex USA Index. Conversely, when the USD weakens, it can make foreign investments relatively more attractive, potentially boosting demand for international stocks and contributing to an increase in the MSCI World ex USA Index.
It’s important to note that while there can be observed correlations between the USD and the MSCI World ex USA Index, they are not fixed or guaranteed. The relationship between the two can vary depending on a multitude of factors.
Q1 Earnings Estimates vs Results
With Q1 earnings season wrapped up, the market cheered the “less bad” narrative. Prior to the season kicking off, analysts estimated a Q1 earnings decline of -6.7%. With 99% of the SP 500 already reported, the blended earnings decline was -2.1%. This will be the second straight quarter that the SP 500 has
reported a decline in earnings, but the overwhelming consensus by the stock market was positive since expectations were so much worse.
(Source: FactSet)
The chart above tracks the SP 500 Forward Earnings Per Share (EPS) vs the Price of the index. At month end, the forward 12-month P/E ratio sits at 18.0. This P/E ratio is below the 5-year average (18.6) but above the 10-year average (17.3). Even with the earnings declining, the market tends to react on expectations instead of absolute numbers so it is important for investors to gauge expectations as they assess the overall market
Articles We’re Reading
Apple announces new products, enhancements at its Worldwide Developers Conference (Bloomberg)
Possible write-down of commercial mortgages could spill into the broader economy (Politico)
SEC says Binance mishandled billions in customer funds and lied to regulators (NY Times)
Bearish positioning in S&P 500 highest since 2007, bullish bets on Nasdaq 100 near highest level since late last year (Yahoo)
Market Snapshot
For the Month Ending 5/31/2023 (Cumulative Returns)1
1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.
Did You Know?
With baseball season in full swing and the new pitch clock speeding up games, we are seeing a dramatic decrease in the length of games. While much of this has been a welcome change, we wanted to revisit the longest game in MLB history. On May 1, 1920, between the Boston Braves (now known as the Atlanta Braves) and the Brooklyn Robins (now known as the Los Angeles Dodgers), the game lasted 26 innings and ended in a tie!
The game began in the afternoon and stretched into the early morning hours of the following day. Eventually, due to darkness and the lack of stadium lights, the game ended in a 1-1 tie.
This historic matchup is known as the “Braves vs. Robins 26-inning tie” or the “Longest MLB game by innings.” It is worth noting that at the time, tie games were allowed due to various factors such as darkness or curfew rules.
The game is often remembered for its marathon length and the endurance demonstrated by the players. However, it’s important to clarify that it ended in a tie, making the White Sox vs. Brewers game in 1984 the longest MLB game in terms of innings played that resulted in a definitive winner.
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
