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Chart 1: AI's influence on the S&P 500
Source : Eeagli
This chart highlights the growing influence of AI on stock markets. It compares 20 influential and AI-influenced companies within the broad US S&P 500 index (blue curve) with the entire S&P 500 (yellow curve) and the S&P 500 without these 20 companies (red curve). The result is glaringly obvious.
Since January 1, 2018:
20 AI influenced stocks into S&P 500 = +179.5%
S&P 500 = +58.9%
S&P 500 minus 20 AI stocks = -5.5%.
Here's the full list of the 20 S&P 500 companies most influenced by artificial intelligence according to James Eagle: Alphabet, Amazon, Apple, Applied Materials, Autodesk, Cisco Systems, Salesforce, Meta Platforms, HP, IBM, Intel, Microsoft, Nvidia, Oracle, AMD, Tesla, Texas Instruments, Boeing and Visa. If the last three names, less technological than the others, may surprise you, you should know that Boeing is adopting AI in areas such as autonomous flight, predictive maintenance and aircraft manufacturing; Walt Disney is using AI in content recommendation, animation and user experience enhancement; and finally Visa is applying AI to improve fraud detection and risk management.
Chart 2: The impact of Fed speeches has changed since the 2008 crisis
Source : Joachim Klement in Klement Investing
Fed Days - those days when Fed Chairman Jerome Powell shares the US central bank's decisions on current macroeconomic issues and potential rate hikes - set the tone for the financial markets. At the moment, Fed Funds rate hikes are at the heart of the debate to tackle inflation. And this is where we need to distinguish between two points: 1) the actual change in Fed Funds rates and 2) future directions. In the markets, the future matters more than the present. And the story investors tell themselves is the main driver of the rise (at least in the short term). When the Fed announces rates, it's more important to look at what it says it will do in the future, as this is the most important piece of rate data to know how the market will react. When it comes to the Fed, words are louder than deeds. If current data were more important than future data, then we'd have market lows when the Fed announces its latest rate hike. But history often shows us the opposite! If we go back to 1954, the S&P 500 fell by an average of 17.5% after the last rate hike, before bottoming out much later.
What's more, the Fed's forward guidance on rates is becoming increasingly important. This is precisely the purpose of the chart above, which shows the correlation between the S&P 500 in the two weeks following a Fed decision and the change in Fed Funds rates, as well as the change in Fed Funds rates expected in the future. Prior to the financial crisis, the highest correlation was between the S&P 500 and the actual change in Fed Funds rates announced by the Fed. The correlation between the S&P 500 and expected Fed Funds rates in nine or twelve months' time was virtually nil. Today, the correlation between the S&P 500 and the actual change in federal funds rates is zero, but the correlation with federal funds rates expected in nine or twelve months' time has increased considerably. The situation has completely changed since the subprime crisis of 2008. Since 2008, the Fed - and many other central banks - have shifted their policy towards a forward orientation.
Chart 3 : Quality is back (again)
When we look at the investment factors applied to the MSCI ACWI (All Country World Index), which groups the world's 2935 largest listed companies across 23 developed and 24 emerging markets, the trends are disparate. On the one hand, we have the Momentum, High Dividend Yield and Minimum Volatility factors underperforming the MSCI ACWI index. On the other hand, the Growth, Equal Weighted and Value factors are in line with the benchmark. And finally, the Quality factor, which outperforms the MSCI ACWI index.
The Quality factor favours companies with a high return on equity (ROE), stable growth and low financial leverage. If the quality factor outperforms this year, it's no exception. The MSCI ACWI Quality index has achieved an annualized return of 11.06% since 1994, compared with just 7.67% for its big brother, the MSCI ACWI. The leading companies in the global quality index are : Nvidia, Apple, Microsoft, Meta Platforms, TSMC, Visa, Alphabet, Johnson & Johnson, Eli Lilly and UnitedHealth.
Chart 4 : VIX at the bottom
The VIX is a volatility indicator for the US financial market. It is compiled daily by the Chicago Board Options Exchange. This index is calculated by averaging the annual volatility of calls and puts on the S1P 500 index, and is currently below 14, which is historically low.
Chart 5: A qualitative beauty company
Source : Quartr
As with every episode of this series on "Perspective Graphics", we end with a short presentation of a quality company. Today, Ulta Beauty is in the spotlight. It's an American beauty retailer comparable to Sephora. The company operates around 1,264 stores in 50 states. The company operates retail stores specializing in the sale of cosmetics, fragrances, hair care and skin care products. The stores also feature full-service salons. Its stores, e-commerce website and mobile applications offer around 25,000 products in a variety of categories and price points, including Ulta Beauty's own brand. The company benefits from its differentiated offering with superior merchandisers, a convincing track record of new products and innovations, above-average growth potential in the retail sector and a strong management team. Sales CAGR has been 18% since 2007.
