8 ms·

Surging stockmarkets are powered by artificial intelligence

84 points by axiomdata316 3y ago

ajsnigrutin 3y ago
So.... I'm guessing if the AI messes up spectacularly, or if some reddit group manages to trick it to overinflate some penny stock, the stock markets will undo all the trades, so that billionaires don't lose a few million?
- HWR_14 3y ago
  I think the major mistake in your statement is that the billionaires would lose more than a few million. But yes, they have reversed trades when people take advantage of flaws in automated market-marking scripts.
  - slymon99 3y ago
    When were trades reversed when a market maker had a bad algo? If you are doing market manipulation, sure, your trades might get reversed, but if someone wants to puke money across the tape it's absolutely legal to take it.
    - HWR_14 3y ago
      I'm not able to find the story now, but there was a European (UK?) youngish person (teen?) who took advantage of bad market maker code to make hundreds of thousands. Those trades were reversed. The trades were under US jurisdiction.
- roganartu 3y ago
  Unlikely. The trades that caused KCG to collapse [1] were not reversed (~$400m in losses). Any firm worth their salt has risk systems in place to prevent runaway trading too, and those aren’t black boxes like AI/ML. They’re limits set for specific strategies or teams etc, and typically require approval from firm partners to increase past certain levels. Collapses of firms are far more often caused by lapses in proper risk management than bugs in code. The KCG collapse looks like a bug on the surface but was ultimately a misuse of accounts that sidestepped these risk systems, so they couldn’t stop the runaway caused by the bug. [1] https://en.m.wikipedia.org/wiki/Knight_Capital_Group https://en.m.wikipedia.org/wiki/Knight_Capital_Group
- moonchrome 3y ago
  AI hype is driving investment, not making the investments (according to the article)
  - noduerme 3y ago
    What about all the AI-generated articles hyping AI? Maybe some AGI is already driving the hype that's driving the investments in itself...
- williamcotton 3y ago
  If you read the article you would know that this is about stock valuations for AI and AI adjacent companies, not about algorithmic trading.
  - akira2501 3y ago
    The connection between this mistake and the valuations themselves seem to be related.
  - meghan_rain 3y ago
    That's a big IF for HN tbh lmao
willsmith72 3y ago
Makes sense, we're not even beginning to see the productivity gains across the board from the last year's advances
- hn_thrwn 3y ago
  We didn't see the productivity advances from the personal computer for 20 years either. It takes a very long time for people to learn how to use new tools.
  - deleted 3y ago
    [deleted]
  - mdgrech23 3y ago
    If you're on this sub reddit you're in bubble. Talk to the 40+ non tech crowd in middle of America. The number of them that have tried and used ChatGPT is going to be shockingly low. Even take the 40+ non tech office worker, my gut says a huge percent has not used chat gpt.
    - 12907835202 3y ago
      Comments like this make me worried I'm always reading posts from bots and the developer forgot to take out the word Reddit when pointing the bot at HN. But a human brain fart is probably just as likely.
      - yadaeno 3y ago
        Almost all of their comments sound like they are trying to emulate reddit style comments. They refer to this “sub” multiple times.
    - mullingitover 3y ago
      Even in software engineering, GitHub Copilot has barely started to take off, let alone ChatGPT.
    - 3y ago
paulpauper 3y ago
Yet the chip stocks have been flat for 2 weeks, such as Marvel and Nvidia. But QQQ and others still surging. It's not just an AI boom, but a risk-on tech boom. However, crypto not participating, but keeps falling. This is why it's so hard to beat the market and why conventional wisdom keep failing: people were expecting high inflation to hurt stocks, or expecting rate hikes to hurt stocks, or bought meme stocks which crashed and burned, or bought crypto instead of stocks. Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome.
- akira2501 3y ago
  > This is why it's so hard to beat the market and why conventional wisdom keep failing Is any of those ideas truly conventional wisdom, or just popular culture among some social media sites? > Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome. Are the majority of people _not_ doing this?
  - crazygringo 3y ago
    >> people were expecting high inflation to hurt stocks, or expecting rate hikes to hurt stocks > Is any of those ideas truly conventional wisdom, or just popular culture among some social media sites? These are absolutely conventional wisdom. It's as conventional as you can get, and the opposite of crazy ideas you see on social media.
  - Our_Benefactors 3y ago
    At least enough people are not doing it that it’s still a viable strategy.
    - lumb63 3y ago
      Or, it is a viable strategy because enough people are doing it. We’ve seen this with ESG funds for instance. More investors want to invest in ESG funds, because bigger firms decided to. That makes ESG funds go up, and those investors then look like geniuses. Similarly, when a huge portion of the population market buys the S&P 500 every single week, how can it not go up?
paxys 3y ago
While the premise is believable, I expected a more researched and persuasive piece than 4 paragraphs of "Nvidia went up and there's a lot of AI hype, so the stock market rally must be all because of it".
- TheAlchemist 3y ago
  Uh, they do provide some numbers though... "On its own, the price of Nvidia is responsible for an enormous slice of the stockmarket recovery. Since the end of November the firm’s market capitalisation has soared from under $400bn to $925bn—accounting for a fifth of the rally. Add Nvidia’s surge to the growing market capitalisations of the 13 other firms with ai exposure and a remarkable 73% of the broader rally is explained." "In November the average price to current earnings multiple of an s&p 500 firm, excluding the 14 most exposed to ai, was around 27. As we went to press, the multiple had dipped to 26. Meanwhile, the average multiple of firms in our ai bucket had leapt from 43 to 77." Not sure what you would expect - they just point to the fact that most of the rally is achieved through the 'AI' companies - the rest of the index is actually down, or mostly down. That's fact. What more do you want to be more persuasive ?
  - megablast 3y ago
    So nvidia, detecting it is training an ai to pick stock to invest in, prioritises nvidua stock.
  - paxys 3y ago
    Almost all of S&P 500's recent rally has come from 5 companies - Nvidia, Apple, Google, Microsoft and Amazon (https://www.axios.com/2023/06/01/sp500-tech-companies-stock-price https://www.axios.com/2023/06/01/sp500-tech-companies-stock-...). Are they all "AI companies"? Sure, but they also do basically everything else. So it's still a pretty flimsy correlation. A more reasonable explanation is that there was an overcorrection in big tech valuations during the downturn a couple years ago (while they are all continuing to make record profits quarter after quarter), and now after layoffs and cost cutting the market is slowly normalizing in their favor.
WXLCKNO 3y ago
The fundamental reality of everyday people hasn't changed whatsoever. It's getting worse as people get financially drained by higher rents and higher food prices. None of these recent surges feel sustainable but who knows.
- JumpCrisscross 3y ago
  > It's getting worse as people get financially drained by higher rents and higher food prices Real wages ran flat from Q4 '21 through Q1 '23 [1]. Real disposable personal income also doing fine [2]. I don't mean to minimize the real struggles folks in our cities, or in tech, are facing. But it's not the whole picture. [1] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q [2] https://fred.stlouisfed.org/series/DSPIC96 https://fred.stlouisfed.org/series/DSPIC96
- Robotbeat 3y ago
  It has made a significant change in basically every person in school above 5th grade. Which is around a tenth of the population. Additionally, gas prices are to pre-war levels (https://www.gasbuddy.com/charts https://www.gasbuddy.com/charts), natural gas prices are back below pre-war, actually below pre-Covid levels (https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm). Lumber is back to pre-covid levels (https://tradingeconomics.com/commodity/lumber https://tradingeconomics.com/commodity/lumber). Milk is back to pre-covid levels (https://tradingeconomics.com/commodity/milk https://tradingeconomics.com/commodity/milk). Meanwhile unemployment is at the pre-COVID baseline already, historically low 3-4%, below the traditional 5% "full employment." Real wages (i.e. adjusted for all that inflation) is ALSO above pre-covid levels. https://ycharts.com/indicators/us_real_average_weekly_earnings https://ycharts.com/indicators/us_real_average_weekly_earnin... House prices aren't increasing like they were, and the interest rate hike has made it expensive to buy a new house, but overall, it's really hard to claim people are being drained right now. Almost any other time has had worse employment, etc.
  - BuyMyBitcoins 3y ago
    If I’m reading the last chart correctly, the real wage is up by about a dollar and a half per week given the timeframe of June 2023 vs Jan 2020. That doesn’t seem significant and if you look at the shape of the graph it’s trending down from the real wage gains during the height of Covid. December 2020 shows $398 per week while today shows $378 per week, so while it’s still above a pre Covid level of $376 I don’t think this is a good signal of recovery.
dpc050505 3y ago
Oil is dirt cheap and opec is getting seriously challenged but clearly it's AI.
joshspankit 3y ago
Asking HN: What will happen when “regular traders” are running AIs? I’m imagining a kind of “inbreeding” where AIs are doing fast trades based on signals other AIs are giving, but it’s not my expertice.
- AnthonyMouse 3y ago
  The AIs "regular traders" will have will be the same ones as one other, so they'll make similar recommendations, so they'll be priced in. But they'll make similar recommendations to many people, so those stocks will go up, and people will think it's working. Then some new AI will be released that makes different recommendations and the stocks artificially inflated by the obsolete AI will crash. People will say that you need the latest AI or you'll be left behind. This is not a new thing. It's how every commodified stock-picking mechanism works. By the time retail investors have it, you're already inside a bubble.
- astrange 3y ago
  Nothing, because the AIs will tell you to invest in low cost passive index funds. Mainly because it's correct but also because the AIs will be certified financial advisors and will tell you what any of them would. "Regular traders" are gamblers whose job is to give market-makers their money in trade fees.
  - sharts 3y ago
    The gambling allows price discovery to occur. Without it buying index funds is to buy no matter the cost.
    - astrange 3y ago
      You're providing price information anytime you buy a fund that's choosier than VTSAX. Conversely, if your opinion is the tech sector will go up and so you buy NVDA instead of a tech sector index fund, you've bet more than you intended to.
    - chii 3y ago
frakkingcylons 3y ago
https://archive.is/XJURL https://archive.is/XJURL
ErikAugust 3y ago
https://trimread.org/articles/38937 https://trimread.org/articles/38937 No paywall…
dehrmann 3y ago
So the robots are betting on the robots.
nytesky 3y ago
So how much stock trading will be CONTROLLED by AI models soon? What if it pushed prices higher and higher? Or what about Armageddon where some “hallucination” triggers a major financial crisis?

84 points by axiomdata316 3y ago

So.... I'm guessing if the AI messes up spectacularly, or if some reddit group manages to trick it to overinflate some penny stock, the stock markets will undo all the trades, so that billionaires don't lose a few million?

HWR_14 3y ago
I think the major mistake in your statement is that the billionaires would lose more than a few million. But yes, they have reversed trades when people take advantage of flaws in automated market-marking scripts.
- slymon99 3y ago
  When were trades reversed when a market maker had a bad algo? If you are doing market manipulation, sure, your trades might get reversed, but if someone wants to puke money across the tape it's absolutely legal to take it.
  - HWR_14 3y ago
    I'm not able to find the story now, but there was a European (UK?) youngish person (teen?) who took advantage of bad market maker code to make hundreds of thousands. Those trades were reversed. The trades were under US jurisdiction.
roganartu 3y ago
Unlikely. The trades that caused KCG to collapse [1] were not reversed (~$400m in losses). Any firm worth their salt has risk systems in place to prevent runaway trading too, and those aren’t black boxes like AI/ML. They’re limits set for specific strategies or teams etc, and typically require approval from firm partners to increase past certain levels. Collapses of firms are far more often caused by lapses in proper risk management than bugs in code. The KCG collapse looks like a bug on the surface but was ultimately a misuse of accounts that sidestepped these risk systems, so they couldn’t stop the runaway caused by the bug. [1] https://en.m.wikipedia.org/wiki/Knight_Capital_Group https://en.m.wikipedia.org/wiki/Knight_Capital_Group
moonchrome 3y ago
AI hype is driving investment, not making the investments (according to the article)
- noduerme 3y ago
  What about all the AI-generated articles hyping AI? Maybe some AGI is already driving the hype that's driving the investments in itself...
williamcotton 3y ago
If you read the article you would know that this is about stock valuations for AI and AI adjacent companies, not about algorithmic trading.
- akira2501 3y ago
  The connection between this mistake and the valuations themselves seem to be related.
- meghan_rain 3y ago
  That's a big IF for HN tbh lmao

willsmith72 3y ago

Makes sense, we're not even beginning to see the productivity gains across the board from the last year's advances

hn_thrwn 3y ago
We didn't see the productivity advances from the personal computer for 20 years either. It takes a very long time for people to learn how to use new tools.
- deleted 3y ago
  [deleted]
- mdgrech23 3y ago
  If you're on this sub reddit you're in bubble. Talk to the 40+ non tech crowd in middle of America. The number of them that have tried and used ChatGPT is going to be shockingly low. Even take the 40+ non tech office worker, my gut says a huge percent has not used chat gpt.
  - 12907835202 3y ago
    Comments like this make me worried I'm always reading posts from bots and the developer forgot to take out the word Reddit when pointing the bot at HN. But a human brain fart is probably just as likely.
    - yadaeno 3y ago
      Almost all of their comments sound like they are trying to emulate reddit style comments. They refer to this “sub” multiple times.
  - mullingitover 3y ago
    Even in software engineering, GitHub Copilot has barely started to take off, let alone ChatGPT.
  - 3y ago

paulpauper 3y ago

Yet the chip stocks have been flat for 2 weeks, such as Marvel and Nvidia. But QQQ and others still surging. It's not just an AI boom, but a risk-on tech boom. However, crypto not participating, but keeps falling. This is why it's so hard to beat the market and why conventional wisdom keep failing: people were expecting high inflation to hurt stocks, or expecting rate hikes to hurt stocks, or bought meme stocks which crashed and burned, or bought crypto instead of stocks. Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome.

akira2501 3y ago
> This is why it's so hard to beat the market and why conventional wisdom keep failing Is any of those ideas truly conventional wisdom, or just popular culture among some social media sites? > Staying invested in index funds regardless of what the macro situation is tends to produce the best outcome. Are the majority of people _not_ doing this?
- crazygringo 3y ago
  >> people were expecting high inflation to hurt stocks, or expecting rate hikes to hurt stocks > Is any of those ideas truly conventional wisdom, or just popular culture among some social media sites? These are absolutely conventional wisdom. It's as conventional as you can get, and the opposite of crazy ideas you see on social media.
- Our_Benefactors 3y ago
  At least enough people are not doing it that it’s still a viable strategy.
  - lumb63 3y ago
    Or, it is a viable strategy because enough people are doing it. We’ve seen this with ESG funds for instance. More investors want to invest in ESG funds, because bigger firms decided to. That makes ESG funds go up, and those investors then look like geniuses. Similarly, when a huge portion of the population market buys the S&P 500 every single week, how can it not go up?

paxys 3y ago

While the premise is believable, I expected a more researched and persuasive piece than 4 paragraphs of "Nvidia went up and there's a lot of AI hype, so the stock market rally must be all because of it".

TheAlchemist 3y ago
Uh, they do provide some numbers though... "On its own, the price of Nvidia is responsible for an enormous slice of the stockmarket recovery. Since the end of November the firm’s market capitalisation has soared from under $400bn to $925bn—accounting for a fifth of the rally. Add Nvidia’s surge to the growing market capitalisations of the 13 other firms with ai exposure and a remarkable 73% of the broader rally is explained." "In November the average price to current earnings multiple of an s&p 500 firm, excluding the 14 most exposed to ai, was around 27. As we went to press, the multiple had dipped to 26. Meanwhile, the average multiple of firms in our ai bucket had leapt from 43 to 77." Not sure what you would expect - they just point to the fact that most of the rally is achieved through the 'AI' companies - the rest of the index is actually down, or mostly down. That's fact. What more do you want to be more persuasive ?
- megablast 3y ago
  So nvidia, detecting it is training an ai to pick stock to invest in, prioritises nvidua stock.
- paxys 3y ago
  Almost all of S&P 500's recent rally has come from 5 companies - Nvidia, Apple, Google, Microsoft and Amazon (https://www.axios.com/2023/06/01/sp500-tech-companies-stock-price https://www.axios.com/2023/06/01/sp500-tech-companies-stock-...). Are they all "AI companies"? Sure, but they also do basically everything else. So it's still a pretty flimsy correlation. A more reasonable explanation is that there was an overcorrection in big tech valuations during the downturn a couple years ago (while they are all continuing to make record profits quarter after quarter), and now after layoffs and cost cutting the market is slowly normalizing in their favor.

WXLCKNO 3y ago

The fundamental reality of everyday people hasn't changed whatsoever. It's getting worse as people get financially drained by higher rents and higher food prices. None of these recent surges feel sustainable but who knows.

JumpCrisscross 3y ago
> It's getting worse as people get financially drained by higher rents and higher food prices Real wages ran flat from Q4 '21 through Q1 '23 [1]. Real disposable personal income also doing fine [2]. I don't mean to minimize the real struggles folks in our cities, or in tech, are facing. But it's not the whole picture. [1] https://fred.stlouisfed.org/series/LES1252881600Q https://fred.stlouisfed.org/series/LES1252881600Q [2] https://fred.stlouisfed.org/series/DSPIC96 https://fred.stlouisfed.org/series/DSPIC96
Robotbeat 3y ago
It has made a significant change in basically every person in school above 5th grade. Which is around a tenth of the population. Additionally, gas prices are to pre-war levels (https://www.gasbuddy.com/charts https://www.gasbuddy.com/charts), natural gas prices are back below pre-war, actually below pre-Covid levels (https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm https://www.eia.gov/dnav/ng/hist/rngwhhdm.htm). Lumber is back to pre-covid levels (https://tradingeconomics.com/commodity/lumber https://tradingeconomics.com/commodity/lumber). Milk is back to pre-covid levels (https://tradingeconomics.com/commodity/milk https://tradingeconomics.com/commodity/milk). Meanwhile unemployment is at the pre-COVID baseline already, historically low 3-4%, below the traditional 5% "full employment." Real wages (i.e. adjusted for all that inflation) is ALSO above pre-covid levels. https://ycharts.com/indicators/us_real_average_weekly_earnings https://ycharts.com/indicators/us_real_average_weekly_earnin... House prices aren't increasing like they were, and the interest rate hike has made it expensive to buy a new house, but overall, it's really hard to claim people are being drained right now. Almost any other time has had worse employment, etc.
- BuyMyBitcoins 3y ago
  If I’m reading the last chart correctly, the real wage is up by about a dollar and a half per week given the timeframe of June 2023 vs Jan 2020. That doesn’t seem significant and if you look at the shape of the graph it’s trending down from the real wage gains during the height of Covid. December 2020 shows $398 per week while today shows $378 per week, so while it’s still above a pre Covid level of $376 I don’t think this is a good signal of recovery.

dpc050505 3y ago

Oil is dirt cheap and opec is getting seriously challenged but clearly it's AI.

joshspankit 3y ago

Asking HN: What will happen when “regular traders” are running AIs? I’m imagining a kind of “inbreeding” where AIs are doing fast trades based on signals other AIs are giving, but it’s not my expertice.

AnthonyMouse 3y ago
The AIs "regular traders" will have will be the same ones as one other, so they'll make similar recommendations, so they'll be priced in. But they'll make similar recommendations to many people, so those stocks will go up, and people will think it's working. Then some new AI will be released that makes different recommendations and the stocks artificially inflated by the obsolete AI will crash. People will say that you need the latest AI or you'll be left behind. This is not a new thing. It's how every commodified stock-picking mechanism works. By the time retail investors have it, you're already inside a bubble.
astrange 3y ago
Nothing, because the AIs will tell you to invest in low cost passive index funds. Mainly because it's correct but also because the AIs will be certified financial advisors and will tell you what any of them would. "Regular traders" are gamblers whose job is to give market-makers their money in trade fees.
- sharts 3y ago
  The gambling allows price discovery to occur. Without it buying index funds is to buy no matter the cost.
  - astrange 3y ago
    You're providing price information anytime you buy a fund that's choosier than VTSAX. Conversely, if your opinion is the tech sector will go up and so you buy NVDA instead of a tech sector index fund, you've bet more than you intended to.
  - chii 3y ago

frakkingcylons 3y ago

https://archive.is/XJURL https://archive.is/XJURL

ErikAugust 3y ago

https://trimread.org/articles/38937 https://trimread.org/articles/38937 No paywall…

dehrmann 3y ago

So the robots are betting on the robots.

nytesky 3y ago

So how much stock trading will be CONTROLLED by AI models soon? What if it pushed prices higher and higher? Or what about Armageddon where some “hallucination” triggers a major financial crisis?