Financial Markets are notoriously curious creatures…no, honestly, they are: take, for example, the Lauder Lipstick Index, which correlates share movements (unsurprisingly) to sales of lipstick: in bearish markets, consumers tend to buy greater quantities of less expensive items (like lipstick), rather than costly coats and handbags (we’re talking mostly the female of the species here). And sure enough, in the months after the 9/11 terrorist attacks, lipstick sales rose by 40% in inverse correlation to a global stock market crash. During COVID, on the other hand, and throughout 2021, the Lipstick Index dramatically flipped sides: sales of lipstick fell by 40%, and the FTSE 100 rose by 14.3%... but maybe that had more to do with the marginal inefficiencies of lipstick when you’re wearing a mask.
The Cardboard Box Index correlates stock market movements to sales of…you’ve guessed it, cardboard boxes: a fall in aggregate box production is a sure sign of impending recession. And when you think about it, that makes sense because almost everything we buy is packed and shipped in cardboard boxes. So, while he was Chairman of the Federal Reserve, Alan Greenspan was known to make extensive use of the Cardboard Box Index to monitor and make sense of US manufacturing figures.
Whether Mr Greenspan ever reached the latest Big Mac Index, however, is a matter for greater conjecture, but it seems currency traders still swear by it. Based on the premise that a Big Mac more or fewer costs the same everywhere, an index structured on the local (real term) cost of a burger in 120 countries can tell you something about whether individual currencies are over or under-valued (I’m not making this up: you’ll find the Index at www.economist.com/big-mac-index, and for those who can’t be bothered or have better things to do, it reports at the moment that Sterling is undervalued against the US Dollar by 12.9%).
Being the perceptive readers you are, though, you’ve probably already spotted that each of these seemingly bizarre indices has more than a grain of truth at heart: taking them in turn, economists will quickly identify significant data sets drawn from marginal propensities to consume (lipstick), demand-pull pricing variables (cardboard boxes), and purchasing-parity metrics (burgers). After all, when everything’s said and done, it’s usually just how you dress the data up. But taken together, and no matter how superficially cooky, each index demonstrates in its way just how curious, and yet how rational, Financial Markets can be.
Now we’ve got another one, and its underlying metrics merit just as much attention as all those lipsticks, burgers, and boxes have been getting…welcome to the AI Media Index, and this is how it goes:
Movements in the market value of Tech and Blue Chip stocks are directly proportional to the number of times mainstream media outlets announce another breakthrough in generative AI. The greater the number of relevant mentions, the more bullish those markets become, and significantly fewer mentions will make markets more bearish.
So, let’s take one discrete (but highly important) sector as an example: US Tech Stocks were languishing in the doldrums at the beginning of this year (suffering from rapid incremental spikes in interest rates, on top of a rash, COVID-induced hiring spree (COVID again…)). Then ChatGPT hit the headlines in February, and all things AI immediately became the stuff of daily speculation: within five days of launch, the ChatGPT app had attracted a Million users and broke all records when it generated 100 Million users in two months. Feeding off this on-the-ground interest (and presumably vice versa), the cycle of press comment (good and bad) kicked into overdrive, and the S&P index duly rose dramatically by 18.6% in five months. The impact on Nasdaq was, by definition, even more dramatic: public interest in AI-powered a market surge of 37.6% in six short months.
And, of course, there’s certainly nothing ephemeral about the magic touch of this new Index…far from it. Dan Ives, Managing Director of Wedbush Securities (www.wedbush.com), described the underlying tech melange as a “1995 internet moment”,…and he should know. Every major and minor corporate (and all points in between) is now plugging feverishly into what he calls “ the AI angle”.
So, it’s not all quite as cooky as you might think…
The impact of AI on our broader economic landscape is much greater and more profound than you may think…so it’s certainly worth monitoring press comments, however cooky it might look.
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