More and more of the US economy is riding on the same trade. The University of Michigan published its preliminary consumer sentiment index, showing another dismal reading. Overall, sentiment fell from 48.1 in September to 46.3 in October — 1.3 points below economists’ expectations.
What’s interesting is the very clear schism that’s now showing up between those who own stocks and those who don’t. You can see this dynamic in a separate UMich report also out today, talking about the impact of higher gas prices on consumer spending. And you can even see the stock ownership schism showing up in last week’s revisions to household income and spending from the BEA too.
Here’s Odd Lots regular and Macquarie strategist Viktor Shvets summarizing: So with stocks at record highs and earnings growth still strong, the dividing line for the US consumer is increasingly coming down to stock ownership, which is itself increasingly tied to the AI story. The concern here is that so much of the economy — both on the supply side and the demand side — is now tied to AI. The risk is that both the investment boom and sustained consumer spending are riding on the same AI trade.
As Tracy talked about, the market and the economy are all tied up in one big trade right now. It’s AI. And if you don’t like it, too bad.
There’s almost nothing to find that’s not either implicitly long AI or short AI. The major US indices are doing quite well, but breadth has been terrible. Most stocks aren’t AI stocks and they’re going down.
The good news is that the biggest stocks are (for now) perceived to be AI winners, and their strength and size is doing plenty of work to keep the whole thing aloft. But actually it isn’t quite true that everything is the AI trade. For example, a number of Latin American markets are having a phenomenal year.
Brazil is up 43% so far this year in dollar terms. Colombia is up 45%. Peru is up around 40%.
I’m pretty sure none of these countries are AI powerhouses. And they aren’t AI losers per se. Germany’s DAX index is down about 2.4% (in dollar) terms, and that’s almost certainly more about China Shock 2.0 than it is about AI.
France’s CAC 40 is down almost 9%, and of course the mess underway there is well known. A chart that I really like, but haven’t checked in on in a while is the ratio of the whole US market (via the VTI ET F) vs. the rest of the world excluding the US (VEU). As you can see, the US has been doing well lately, but we’re only back to where we were in the middle of last year, and still well off the highs which occurred right around Trump’s inauguration.
Obviously, there’s a lot of AI in global stock markets (particularly in Korea and Taiwan). But it’s still striking how in some sense the US is at the forefront of this booming industry and it’s been pushing our markets to record highs. And yet relative to the rest of the world, we’ve kind of been treading water (at best) for some time now.
The latest controversy in AI (there seems to be a new one every week) relates to all of the math proofs that Open AI is producing with the help of internal, unreleased models. Some mathematicians are in a state of despair, worried about the future of their field. On this episode we speak with Justin Solomon, the associate dean of engineering education at MIT about how the academics are dealing with the role AI plays in the math world.
In addition to discus...
Source: Bloomberg Markets · Summarized by HeadlinesBriefing