Artificial Rally?

It was another great quarter for the S&P 500 Index, which represents the top companies in America.  That makes two quarters in a row that the return on the index has exceeded 10%, an extraordinarily rare occurrence.  Beginning last fall, investors got all excited when the cloud giants (Microsoft, Google, and Amazon) introduced commercial versions of generative artificial intelligence (AI).  The overall benefit to society of these services has yet to be established, but AI is expected to “enable people to rethink how we integrate information, analyze data, and use the resulting insights to improve decision-making.”

That quote was generated by an AI service from Microsoft called Copilot.  (By the way, the rest of this article was generated by humanoid intelligence.  Hooray for the humans!)  Interestingly, after being asked several different ways, Copilot was unable to determine when the S&P 500 last increased more than 10% for two quarters in a row.  Clearly, it is a work in progress.  Stock market investors, however, seem to have no doubt that AI will fundamentally change the way society operates and have bid up the shares of any company that is even remotely involved in AI.

During the first quarter of this year, the exuberance extended to the broader, non-tech part of the stock market as well.  It is heartening to note that the enthusiasm for the mainstream companies was not based on hype but was instead a response to exceptional and real financial results across most sectors of the economy.  So, although the intelligence may be artificial, the rally appears to be genuine.

But just to be prudent, your portfolio manager has taken some profits in a few of the high-flying stocks in your account and redeployed the proceeds into high-quality fixed-income assets which are now, finally, offering decent yields in the range of 4 to 5%.

1 April 2024