Are computers making you bullish?

In this newsletter, we’ve discussed many of the reasons the S&P 500 keeps ascending despite the highest tariffs in nearly a century.

But there could be another factor driving market enthusiasm: AI.

The gap between how humans and AI interpret the market is widening. In fact, computer algorithms haven't been this more bullish on stocks than humans since 2020, according to Deutsche Bank data cited by Bloomberg.

A chasm is emerging between those looking at the data themselves and those using algorithms to invest. While some investors see a storm gathering and cutting their equity exposure as a result, others relying more on computers to guide them are largely seeing sunny skies ahead.

The reason for this dichotomy is that while quant firms use complex strategies that factor in momentum and volatility signals, investors who apply a more human touch look at signals such as earnings and broader macroeconomic data to guide investments, according to Bloomberg.

Traders are flocking to ChatGPT

As professional traders lean into computer-driven strategies, retail traders have begun experimenting with their own, simpler version: ChatGPT. But despite its seemingly infinite treasure trove of information, AI isn’t a miracle stock predictor, and studies testing how ChatGPT compares to fund managers have been mixed.

Chatbots have been documented to be sycophantic. The problem with relying on them to tell you what to do with your portfolio? They’ll look at the market with those same flattering eyes, too. AI doesn’t have the same human anxieties about labor department data, tariffs, or geopolitical conflict. That can be helpful for investors using it, because it provides a counterbalance to the day-to-day market moves that can cause needless panic selling. On the other hand, it can cause blind optimism, Axios notes.

The bottom line: Since stock markets have existed, investors have been trying to crack the code to picking lucrative, individual stocks. But there’s a reason broad indexes consistently beat most professional money managers: Nobody knows the future, not even ChatGPT.—LB