Five charts to start your day

AI continues to win the stock market race

As the closing bell rang on Wall Street last Friday, champagne corks popped in the offices of TechAI, a cutting-edge artificial intelligence firm. Their stock had just hit another record high, mirroring the surge in AI-related companies that dominated the second quarter.

Now just delete the name TechAI because it’s not a real company. Next step, just paste in the first AI company that pops into your head and it could be a true story. That’s how insane the AI crazy has become and the stock market is lapping up the narrative.

What’s interesting though is that beyond technology, the picture wasn’t as rosy for the rest of the stock market during the second quarter of this year: six out of eleven S&P 500 sectors finished the quarter in the red. Healthcare, real estate, financials, energy, industrials and materials all lost ground.

What's kept the index up last quarter was a narrow band of AI-related stocks, which surged 14.7 per cent while the rest of the market dipped 1.2 per cent. It very reminiscent of 2023, when index returns were largely driven by the magnificent seven: Apple, Microsoft, Amazon, Alphabet (Google), Tesla, Nvidia, and Meta Platforms.

Adding to the complexity is a volatility paradox. Index-level swings have plummeted to near pre-pandemic lows, while individual stocks gyrate wildly. The "higher for longer" interest rate environment is also taking its toll, particularly on companies with weaker balance sheets. Mid-cap firms short on cash saw a 5 per cent drop in market value, compared to a 1 per cent decline for their more liquid peers.

The take away for me as an investor is that the market is not what it seems and you need to read data with a massive pinch of salt.

Source: The Wall Street Journal

Coming up:

• Where does social media blur truth and fiction most?

• Who will win the 2024 US presidential election?

• Working from home is here to stay

• French stocks are following the UK stock market’s “Trusonomics” episode

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