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In this edition of Your Investment Themes we revisit the AI with Goldman Sachs and Aletheia Capital, Piper Sandler provide an excellent roundup and set of conclusions of what happened in 2Q equity markets as AI took the markets by storm. They conclude that equity markets are at one of the most polarized points so far in the cycle. TS Lombard provide some interesting analysis of the anatomy of the global downturn, spoiler, it is not uniform. Finally, StoneX lay out their rationale for higher US Treasury yields.
Goldman Sachs: Generative AI – hype or truly transformative? (July 5)
Since the release of OpenAI’s generative AI tool ChatGPT in November, investor interest in the technology has surged. The disruptive potential of generative AI technology, and whether the hype around it—as well as market pricing—has gone too far, is the subject of this edition of Goldman’s latest Top of Mind edition. They speak with Conviction’s Sarah Guo, NYU’s Gary Marcus, and GS GIR’s US software and internet analysts Kash Rangan and Eric Sheridan about what the technology can—and can’t—do at this stage. GS economists then assess the technology’s potentially large impact on productivity and growth, which their equity strategists estimate could translate into significant upside for US equities over the medium-to-longer term, though their strategists also warn that past productivity booms have resulted in equity bubbles that ultimately burst. Goldman also discuss where the most compelling investment opportunities in the AI space may lie today, and the near-term risks investors should most watch out for. Click here if you would like to speak to the analyst.
Aletheia Capital: AI spurs American renaissance (June 22)
LinkedIn, the employee-focused social networking site, has reported a significant increase in the number of job listings mentioning AI in March, with a 79% growth, says Keith Woolcock at Aletheia Capital. This aligns with the observation that American companies are more willing to adopt new technology, contributing to their leadership in the tech industry, he says. Recent academic research has shown promising results for large language models like OpenAI’s GPT, according to Woolcock. These models can continuously improve through contests and feedback, demonstrating their potential for self-improvement, he says. Furthermore, Woolcock says the emergence of hyperscale data centers and the need for high-performance networking equipment has benefited companies like Arista Networks and NVIDIA. Despite concerns about AI development, he says research papers suggest that large language models offer infinite improvement possibilities and can build a competitive advantage for businesses. This trend, along with the Biden administration’s initiatives to promote American investment in green energy and chip production, indicates that the US continues to dominate technological innovation as it has done since the 19th century, says Woolcock. Click here for the full report. Click here if you would like to speak to the analyst.
Piper Sandler: What in the world happened to markets in 2Q? (July 3)
As the soft landing vs. hard landing vs. no landing debate has progressed, the gaps in market leadership have widened, writes Mike Kantowitz from Piper Sandler. He now reckons we’re at one of the most polarized points so far in the cycle. Size, style and sector leadership in the second quarter looks very similar to what we saw in the first quarter with Tech, Comm Svcs and Discretionary now significantly outpacing the rest of the market (see page 6 of report). This quarterly piece aims to help investors visualize the longer-term trends in markets and also to provide material that they can use in their own quarterly investment letters. Click here for the full report. Click here if you would like to speak to the analyst.
TS Lombard: The anatomy of the global downturn (July 7)
Central banks are acting in unison but are not fighting the same disease, writes Dario Perkins from TS Lombard. He says the global economy’s malaise reflects a number of separate problems. This note provides a table summarizing the most important global exposures. You might also be interested in another piece Perkins published this week, ‘’Policy Trade-Offs; Macro Divergence”. This provides a more detailed analysis of the differences in the economic malaise facing the US, Europe and UK. Click here if you would like to speak to the analyst.
Stone X: Let them eat bonds (July 2023)
Investors have shifted from recession predictions to more positive scenarios in the past three months. In that time, short-term yields have risen, while long-term yields remain stagnant. Vincent Deluard says this price action is attributable to non-economic factors such as pension funds de-risking with long-term Treasuries, the Bank Term Funding Program incentivizing banks to hold onto Treasuries, the debt ceiling situation halting long-term Treasury issuance, stock outperformance leading to portfolio rebalancing, and homeowners using higher-yielding Treasuries to pay mortgages. Deluard lays all this out in the report. He advises investors to avoid projecting economic meaning onto this non-economic buying and suggests keeping duration short while accumulating cheap energy positions. Click here for the full report. Click here if you would like to speak to the analyst.