The AI Narrative Is Keeping the Market Soaring

It’s the best of times for the stock market. Forget the worst of times – we’re back solidly into the “stocks only go up” camp.

So toss your Dickens into the recycling bin; we’re on a Hunter S. Thompson-esque trip through AI-land.

But even then, it’s not just every company that’s along for the ride. Since the launch of ChatGPT in late 2022, less than 10% of stocks have accounted for the lion’s share of the market’s gains:

A mere 41 stocks in the S&P 500 have been responsible for 70% of the market’s move since the launch of ChatGPT in late 2022. (Source: Bianco Research)

Today, investors are putting the AI story into overdrive. A mere 41 stocks, less than 10% of the S&P 500 Index, have accounted for a full 70% of returns in the past three and a half years.

And year to date, non-AI stocks have underperformed, with an equal-weighted market index trading flat.

Nvidia’s (NVDA) latest announcement of new Windows-based computer processors is giving the market another reason to feel bullish today. It’s hard to have the market go down when giants like Microsoft (MSFT) jump 3% on news like that.

And, of course, a peace deal with the U.S. and Iran is just about finalized – for about the 60th time. While that headline has gotten a bit silly, every rumor about an imminent peace deal with Iran has given stocks a boost – with AI names getting the bulk of the move.

In time, this trend will change, perhaps quickly. And by many measures, stocks are overextended. But investors continue to pile into the AI trade.

And for now, we’re still in a “buy the rumor, and hype” moment.

While most AI stocks have seen their value soar to the point where they’re uncomfortably overbought, there are still a few AI plays that trade at a reasonable value today. For one such name, become a member of Grey Swan Pro — details here.

~ Andrew

P.S. The AI story is providing earnings growth for the stock market right now, which in turn is helping the narrative that AI stocks have more room to rise.

That’s true even as inflationary pressures exist – pressures that, in the past, would have created more cautious markets. Another story right now is more behind-the-scenes: a scramble to secure future resources, from oil to metals and beyond. We’re calling it The Great Race.

We covered this Great Race to adjust to a world of more persistent inflation in yesterday’s Grey Swan Live! If you’re a paid-up member, you can access the full replay, right here:

Turn Your Images On

If you have any questions for us, send them to Feedback@GreySwanFraternity.com.

It’s the best of times for the stock market. Forget the worst of times – we’re back solidly into the “stocks only go up” camp.

So toss your Dickens into the recycling bin; we’re on a Hunter S. Thompson-esque trip through AI-land.

A mere 41 stocks in the S&P 500 have been responsible for 70% of the market’s move since the launch of ChatGPT in late 2022. (Source: Bianco Research)

Today, investors are putting the AI story into overdrive. A mere 41 stocks, less than 10% of the S&P 500 Index, have accounted for a full 70% of returns in the past three and a half years.

And year to date, non-AI stocks have underperformed, with an equal-weighted market index trading flat.

In time, this trend will change, perhaps quickly. And by many measures, stocks are overextended. But investors continue to pile into the AI trade.

And for now, we’re still in a “buy the rumor, and hype” moment.

~ Andrew

P.S. The AI story is providing earnings growth for the stock market right now, which in turn is helping the narrative that AI stocks have more room to rise.

If you have any questions for us, send them to Feedback@GreySwanFraternity.com.

Copper and resources are sending us a cleaner market signal than AI stocks.

Channeling Ludwig von Mises, we observe this morning that price is not just a number; it’s information. Price reflects what buyers and sellers collectively believe: demand, scarcity, fear, speculation, disappointment, future expectations and available supply.

When prices rise, and inventories fall at the same time, the message is usually straightforward: buyers need the stuff, and there is not enough of it.

A low VIX does not predict disaster. It measures complacency. A serial skeptic will read it as the calm before a storm. We shook off that feeling this morning and opted to pursue an opportunity instead.

Here goes:

A VIX reading below 15 means the market is not pricing in much near-term trouble, even though there are obvious risks still sitting in the room: Iran, oil prices, memory chip speculation, circular financing, high valuations, epic high concentrations, spiking long-term interest rates, a regime change at the Fed, a meltdown in Japan and a historic deficit and rising national debt.

Money is not flowing in a clean, straight line from outside investors to productive businesses. The firms at the top are investing in and buying from each other.

Microsoft and OpenAI are the easiest examples to follow.

Microsoft says OpenAI has contracted to purchase an additional $250 billion in Azure services, while Microsoft continues to account for $13 billion in funding commitments to OpenAI as an investment.

At this stage, it’s a stock picker’s market.