Wall Street closed the trading week lower, as shares of Nvidia came under pressure following its fiscal fourth-quarter results and forward guidance, while a hotter-than-expected Producer Price Index report added to inflation concerns causing the 10-year Treasury yield to slip below 4% for the first time in three months as investors increased bond purchases over the course of the week.
The Purchasing Managers Index (PMI) came out with a softer print than expected. A softer PMI indicates that manufacturing output unwound most of the improvement seen since September while new orders slipped indicating a contraction.
Wall Street will start this week focused on geopolitics after the U.S. and Israel carried out attacks against Iran that killed supreme leader Khamenei and other senior leaders. The U.S. and Israel have called for regime change. The oil market will see the biggest direct impact. On the economic front, the February jobs report and January retail sales figures are also due this week.
For the week, the S&P lost 0.4%, while the Nasdaq dipped 1.0%, and the Dow fell 1.3%.
Future Wealth’s View
A weak jobs report this week will reinforce the narrative that artificial intelligence is poised to disrupt business sectors and put thousands of employees and companies out of business. But, it is not so simple, of course. When the internet arrived in the late 1990s, the companies that were spearheading the new technology were Mosaic, Yahoo, Linux with open source software, AOL. The incumbent players – Microsoft, Apple, Cisco etc. were not a part of the conversation. While the internet darlings are long gone, the Microsofts of the world are still controlling most of the business. And the internet only made business processes more efficient causing employees to be more productive and driving up profits for the companies.
Similarly, we expect most of the companies to benefit from AI. There appears to be too much expectation that Anthrophic, Open AI and XAI will destroy the larger players in the software industry. These are companies that are deeply entrenched in the day to day workings of large corporations – controlling the databases, CRM software etc. and expecting AI to obliterate their installed base and years and years of development is simply unrealistic, in our view.
Of course, that does not mean that stocks of those companies will be immune to a roller coaster ride with every new announcement from AI related companies. As investors become fatigued by the non-stop bombardment of AI stories. it is best to step back and let the dust settle before picking winners and losers from the AI trade.
As the saying goes – “Randomly buying or selling stocks without adequate due diligence and research, never ends well.”