Sources: New York Life Investments Multi-Asset Solutions, London Bullion Market Association (LBMA), Nikkei, The Stock Exchange of Thailand (SET), Nasdaq, S&P Global, Shanghai Stock Exchange, Macrobond, 7/3/2023. Gold is represented by the daily price provided by the LMBA. Japan is represented by the Nikkei index. Asia is represented by the SET index. Internet is represented by the Nasdaq index. Housing is represented by S&P 500 Homebuilding index, China is represented by the Shanghai Stock Exchange index, Biotech is represented by the S&P 500 Biotechnology index. AI is represented by an equal-weighted index of the share prices of the following companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla. Past performance is not a guarantee of future results. It is not possible to invest in an index. Index definitions can be found the end of this piece.
Will AI drive productivity gains?
AI has the potential to drive significant productivity gains. The ability of AI systems to automate tasks, analyze large amounts of data, and make intelligent decisions has the capacity to revolutionize industries across the board. However, the extent and timing of these gains remain uncertain. While AI has already shown promising results in various applications like customer support, the full realization of its impact will depend on continued advancements in technology, data availability, and integration into existing workflows.
With AI tools, like any tool, the quality of the output depends on the quality of the input. AI outputs will only be as good as the data organized, the questions asked, the bias and perspectives taught, and the analytic skill to interpret. These constraints may prove temporary – it is typical for new technology to require learning – but cast more dispersion on potential economic outcomes.
Will AI productivity gains translate into stock market performance?
Not necessarily. Amidst the excitement surrounding AI, mega-cap tech companies have seen most of the gains due to their exposure to the AI sector. But for the broader S&P 500, it’s still unclear how and when these companies will translate technology improvements into top and bottom-line growth; and this may not be fully priced by investors in the near term. However, historical data suggests productivity gains have little effect on long term stock market returns.
This relationship likely emphasizes that new technology can create disparities between companies who successfully adapt and those who struggle to keep up – the winners and losers. Consider the digital photography revolution as an example. Film-based photography companies who embraced this new technology and broke into the digital camera space succeeded. Those who were reluctant fell behind.
The Nasdaq Index is a composite stock market index that includes the stocks listed on the Nasdaq stock exchange.
The Nikkei Index is a stock market index for the Tokyo Stock Exchange.
The S&P 500 is an unmanaged index that is widely regarded as the standard for measuring large-cap U.S. stock market performance.
The S&P 500 Homebuilders Index comprises stocks from the S&P 500 that are classified in the GICS Homebuilders sub-industry.
The S&P 500 Biotechnology Index comprises stocks from the S&P 500 that are classified in the GICS Biotechnology sub-industry.
The SET Index is a Thai composite stock market index calculated by the prices of all common stocks on the main board of the Stock Exchange of Thailand (SET).
The Shanghai Stock Exchange Index is a stock market index of all stocks that are traded at the Shanghai Stock Exchange.
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