Sorry for the spoiler, but ChatGPT does not read in tea leaves. It is not a prediction tool, it is not meant to be. It cunningly batches together past data in a most coherent way toward answering a specific question. It simply does it more consistently, more accurately, and on a much larger set of data than a human brain. The sacrosanct principle still works though “past performance does not guarantee future results”.
Indeed, humans are still best at being irrational, and markets behaviour is a reflection of it, and therefore hard to predict. Whether AI-powered or not, fund strategies can only become better at increasing their fundamental, or momentum bias. However, it is no guarantee of superior returns.
Good news is that what you should invest in is mostly driven by your investment goals and risk tolerance, parameters you, as an investor, have full control over. Machines can drastically improve your self-awareness in that regards. The problem comes when investors rationally identified that a certain form of outcome was best suited to their goals and peace of mind, but still desire to beat the market in every circumstances. These fuel day-to-day wealth manager discussions.
– Can we invest for the long-term and yet be tactical
– Is a low-risk investment strategy inevitably low return
– How to be sure not to lose money, yet cover for inflation, and track the overall market performance
– Are we right to succumb to FOMO
– Is it ok to take a few bets
All relevant questions verging on the philosophical. The invariable answer is “it depends”. What matters is to have a game plan, allocations toward specific goals, and limits that trigger reality checks. No need to keep it extremely boring, but implacably organized.
Having said that everyone loves a good investment story, so here it is about the markets. Risk-on has raged on since the beginning of 2023, and most indices are green. Why’s that? The first signs of a recession are milder than thought for now, inflation has come down, and the Fed rate hike cycle is expected to come to an end sometime mid 2023. Yields have started to come down after they reached a peak in Oct22. Asian high yield is now 6% lower, while US high yield is 1.5% lower.
What happens next is pegged to corporate earnings and the business situation they will depict, as well as the evolution employment. So far all is quiet on the Western front, but a further slowdown is feared in 2Q23. Re inflation, the re-start of China might create further demand pressure on commodities and rekindle the spike in oil price. After all, oil price at $79/bl is still lagging the IEA target of $93/bl for 2023.
We remain tactically long short duration income, and continue to enjoy the ride on emerging markets equity. We stay neutral on oil, and commodities waiting to gauge the strength of the upcoming economic slowdown. We believe that gold has rallied thanks to the weakening the dollar, which is meant to stabilize for now.
The rest is chatGPT history.
360 Advisory LLC is a Boston-based RIA managing investments, including crypto