Market Pulse
Monday, June 12, 2023
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.
In this week’s edition we have:
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.
As the year kicked off, the consensus among fund managers was that the global economy would slide into a downturn[1]. To prepare for a potential slump in the equity market, they gravitated towards safer assets like cash and traditionally more resilient sectors such as healthcare and consumer staples. They showed less interest in technology companies, maintaining an underweight position. They were in for a big surprise.
Last week, we entered a bull market for stocks, a phase typically defined by a 20% increase from the most recent low[2]. This significant and largely unexpected upswing in global stocks was propelled by the very same tech sector most fund managers shunned at the turn of the year.
The upbeat mood in the stock market is reflected in the VIX, often referred to as the 'Fear Index'. The VIX represents the market's expectations for volatility over the coming 30 days and a low level generally means market participants don’t foresee problems on the horizon. Even with concerns about the cost of living and falling corporate profits, the VIX has hit lows that we haven't seen since before the pandemic. Normally, expected volatility in the bond and stock markets move in sync, both increasing during times of market uncertainty. Recently stock and bond markets have been at odds about what the future holds. While the stock market suggests calm, the bond market is hinting at rough waters ahead.
The optimism bias is a tendency we humans have to overstate the chances of good things happening. Could stock market investors be overly optimistic here? We don’t know but Warren Buffett once famously advised to be careful when other investors are getting too eager.
This week, we'll get the latest inflation numbers for the US, and we'll hear from the Federal Reserve about what they plan to do next with interest rates. Even a minor negative surprise could cause problems.
Last month, the U.S. stock market appeared to experience a dip due to an explosion near the Pentagon. The catch, however, was that no such explosion took place. A fabricated image, skillfully crafted by AI, was enough to unsettle the markets and trigger a downtrend[3].
The image circulated on social media platforms like Facebook and Twitter and was even shared by a Twitter account sporting the blue verification check mark, likely adding to its perceived authenticity[4]. Recognizing the impact of the fake image, U.S. authorities quickly intervened.
This wasn't an isolated incident. Last year, we saw a similar situation unfold with Eli Lilly, a large pharmaceutical company. A tweet from a verified Eli Lilly Twitter account announced that insulin would be made available for free. The account was fake, but the tweet still resulted in Eli Lilly's stock price plunging over 4%, erasing billions of dollars from its market capitalization[5].
One might be inclined to think that this isn't a significant issue, given that both the market and the share price of Eli Lilly recovered quickly. But quickly is a relative term. It means something very different to an advanced computer algorithm.
Quantitative investing firms, utilising these advanced algorithms, can perform thousands if not millions of trades in mere seconds. And given the speed involved, some of these algorithms operate without human oversight, analysing news feeds from platforms like Twitter to make autonomous decisions about which stocks to buy or sell[6].
The hitch is, if an algorithm is duped by a single piece of disinformation, it can potentially execute thousands of trades before any human intervention is possible. These ultra-fast trading algorithms also respond to each other's actions, which means that a single algorithm acting on false news can potentially trigger a risky domino effect in the stock market.
Looking ahead, we envisage a future where dependable, carefully vetted news will become increasingly valuable. Consumers and enterprises alike might be willing to pay a premium for news from trusted sources.
Thus far, we've been relatively fortunate. The damage to financial markets from the dissemination of fake news appears relatively minor and temporary. But it's critical that global financial regulators stay abreast with the fast-paced advancements in AI and how they’re being used by large fund managers. If they don't manage to keep up, our luck might not hold in the future.
When we think of the human impact on the global climate we often conjure up images of coal power plants spewing CO2 into the atmosphere. A less likely image might be one of a green pasture filled with grazing cows. But livestock farming is responsible for around 20% of global methane emissions[7].
Globally, the average person eats just over 40kg of meat every year. The UK eats double the global average at around 80kg while the average American eats a whopping 120kg. With the global population expected to reach 10bn by the end of the century the race is on to find more sustainable ways of incorporating healthy protein into our diets.
Companies that offer plant-based meat substitutes, like Beyond Meat, have been struggling recently. Partly thanks to the cost of living crisis, demand for more expensive meat substitutes are far below expectations. The slump in demand has sent the valuation of Beyond Meat down by more than 80% and to cut costs they had to let almost 20% of their workforce go[8].
But plant based meat substitutes aren’t the only game in town. Another potential solution seems to be getting investor attention. Cell-based meat grown in labs. There is a big difference between plant-based meat substitutes and cell based meat. Cell-based meat is grown in a lab using real animal cells. For that reason it should share the same taste and texture as conventional meat. It’s already so close to the real thing that in a recent blind tasting, a professional taster and master chef couldn’t identify the real chicken breast[9].
Innovation in the area is progressing at pace. The first commercial sale of cell-based meat was at a restaurant in Singapore[10]. In the US, the FDA completed a pre-market consultation that agreed with the findings of Upside Foods. Their cell-based chicken is safe for human consumption[11]. Upside Foods hopes to bring their product to restaurants in 2023.
UK food tech startups are determined to play a part. Recently a British company, Uncommon, raised $30mn from investors including Sam Altman, the CEO of OpenAI. They plan to use the funds to scale production of cell-based meat. Uncommon believes growing meat in a lab will have less impact on the environment than livestock out in a field[12].
Sam Altman is well known for investing in exciting emerging technologies with commercial applications like AI and nuclear fusion. Given the need to cut global emissions we can see why he is excited about the long-term prospects of cell-based meat.
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[2] https://www.ft.com/content/e02ecc49-4a97-47f6-8a7b-5bef1c71e55d
[3] https://www.nytimes.com/2023/05/23/business/ai-picture-stock-market.html
[8] https://techcrunch.com/2022/10/14/beyond-meat-layoffs-sales-slump/
[9] https://time.com/collection-post/6140206/cultivated-meat-passes-the-taste-test/
