Sidekick Money · A November rally, the importance of macro and a trio of models from Alphabet

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Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Our stories this week:

A November to remember
Beyond Fundamentals: How Macroeconomics Shape Long-Term Stock Market Performance
ChatGPT…meet Gemini Ultra

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Read the full Market Pulse below, or if you want to access it on the go, download the Sidekick app.

Cyril (Chief Investment Officer), and the rest of the Sidekick team.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

1) A November to remember

In November, investor optimism regarding a potential decrease in interest rates next year sparked a significant rally in global financial markets. This optimism was reflected in both stock and bond markets, leading to one of the strongest November performances in decades. The MSCI World Index, which measures the performance of stocks in developed markets worldwide, surged over 9%[1]. Similarly, bonds, particularly in the US, experienced their most robust month since the 1980s[2].

It wasn’t just stocks and bonds that did well though. During 2023 the focus on developments in AI and the ‘Magnificent 7’ may have diverted attention from Bitcoin's impressive rally. Bitcoin's performance was so strong that it surpassed the year-to-date gains of the Magnificent 7 as early as October.

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The cryptocurrency sector has faced challenges in recent years, but the resolution of high-profile legal cases involving FTX and Binance in the U.S., along with growing anticipation that the SEC will greenlight BlackRock's spot Bitcoin ETF, seems to be fueling a renewed sense of optimism among crypto investors[3].

We are now about a year out from the next US presidential election and historically stock market returns have been muted in the 12 months leading up to an election[4]. Let's see what 2024 has in store for all of us.

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2) Beyond Fundamentals: How Macroeconomics Shape Long-Term Stock Market Performance

The prevailing perception of active fund managers as being unable to consistently outperform their benchmarks is supported by numerous studies[5]. These studies indicate that, on average, stock pickers often fall short of their benchmarks when fees are considered. A recent analysis provides insight into a possible cause of this underperformance.

While active stock pickers typically attribute long-term stock market returns to company fundamentals and valuation, this perspective may be overlooking a crucial factor[6]. A recent study, analysing data from 1961 onwards, suggests that this traditional view might not fully capture the driving forces behind stock market movements. The study reveals that a significant portion of aggregate long-term returns, over 70%, can be attributed to a surprisingly small fraction of trading days. These days are specifically those when major macro-economic news is released, which constitute less than 20% of the annual trading calendar[7].

The study also challenges the notion that the recent emphasis on macro-economic factors is merely a temporary shift resulting from the global economic interventions post-pandemic. Contrary to expectations of a return to 'normalcy', the study suggests that macro-economic news has always been a pivotal factor in shaping stock returns, with its influence only intensifying over time.

In conclusion, the empirical findings suggest the need for a re-evaluation of traditional stock-picking strategies. It highlights the importance of macro-economic awareness and adaptability in investment decision-making, especially in an era where global economic policies and news have an increasingly pronounced impact on market dynamics. As the influence of macro-economic factors grows, both active fund managers and investors may benefit from integrating a broader economic perspective into their investment strategies to navigate the evolving landscape of the financial markets.

3) IChatGPT…meet Gemini Ultra

Google has long been considered a frontrunner in AI research and development, a position it has held for much of the past decade. This was in part thanks to the 2014 acquisition of Deepmind, a UK-based AI startup renowned for its numerous breakthroughs in the field[8]. Deepmind stands among the world’s most innovative AI labs. Furthermore, in 2017, Google researchers were instrumental in developing the transformer model, a foundational technology for most Large Language Models (LLMs), including ChatGPT 4.0[9].

Despite this impressive track record, 2023 saw OpenAI and Microsoft overshadow Google in the AI spotlight. Google appeared to be lagging in the fast-paced AI race. However, a recent development suggests a potential shift in the AI narrative.

Yesterday, Alphabet, Google's parent company, unveiled a trio of new AI models: Gemini Ultra, Gemini Pro, and Gemini Nano. Gemini Ultra, the flagship model, boasts impressive capabilities, processing a range of data types like text, images, audio, and video. Early assessments suggest that Gemini Ultra is not only highly competent but also surpasses ChatGPT 4.0 in some benchmarks[10].

While it’s premature to declare anyone as the definitive leader in the AI race, Alphabet’s latest release marks a significant statement of intent. Their introduction of these advanced new models demonstrates a renewed commitment to reclaiming their position as a global leader in AI innovation.

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Notices

Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.

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