If This Number Stays Below 4, It’ll Be Time to Buy These AI Stocks
Once again, the market is at the mercy of the Fed for the next few weeks as it considers the latest economic data and reports. That means we’re in an interesting situation that bodes well for some sectors… and not so great for oth…
Once again, the market is at the mercy of the Fed for the next few weeks as it considers the latest economic data and reports. That means we’re in an interesting situation that bodes well for some sectors… and not so great for others.
We’ve discussed the information that the Fed uses when deciding to raise, lower, or maintain interest rates. But one factor may move the needle, especially in certain tech sectors, should it hit a certain benchmark.
Here’s what to look for to monetize it for yourself…
The TNX’s Magic Number
When analysts look to Treasury yields – or the interest that bonds, notes, and bills accrue – they watch one in particular: the 10-year Treasury bond yield (TNX). This figure can set the precedent for the Federal Reserve when it sets interest rates. As a general rule, when the TNX forms lower highs, the S&P 500 forms higher lows.
In a previous issue, we explored the TNX – what it is, how it affects the Fed’s decisions, and ultimately how it can affect your portfolio.
The length to maturity of the 10-year Treasury bond is attractive to investors – the longer their money is tied up in a bond, the higher the yield. A normal yield curve is typical – shorter-term investments pay less at maturity, while longer-term investments pay more.
Where we get in trouble, however, is when the 10-year Treasury yield inverts. When long-term interest rates like those associated with a 10-year bond are equal to or below the rates seen with shorter-term bonds, historically, it has indicated an impending recession.
Ideally, we’d like to see the TNX stay below 4% as it has since the start of 2023. If it can hold or bounce down a bit, that’ll take pressure off the market. However, the Fed is likely to continue raising the short-term rate above 4% which will invert the yield curve further – typically a bad sign for the economy.
An inverted yield curve doesn’t guarantee a recession or a bear market in 2023, but it is one more reason why we need to maintain a cautious outlook despite positive fundamentals. The mixed outlook will certainly create volatility, which can be good for investors focused on growth sectors (like AI) or income trading strategies.
Your Biggest Risk When It Comes to AI Stocks…
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AI Stocks Poised to Move
Those aforementioned mega-cap stocks that have kept the market afloat in 2023 should continue to do so.
We’re talking about companies that have huge market shares of the S&P 500 – market capitalizations valued at $200 billion or more. They are usually stable in the face of volatility and are investor favorites due to that stability.
A few that are currently at the top of the food chain are Apple Inc. (AAPL), Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), Meta Platforms Inc. (META), and Amazon.com Inc. (AMZN).
Several of these companies mentioned one factor in their recent earnings reports that position them to make explosive profits in 2023 and beyond: artificial intelligence.
AI’s “iPhone Moment”
We’ve explored the myriad uses for AI in a previous issue of Trading Opportunities. Real-time applications extend to electric vehicle operation, cloud computing, fraud detection, healthcare, search engines, and more.
But how did the AI craze start? Three months ago, the world changed forever. And if you’re able to embrace it, you could put yourself in a position to make fortunes over the next decade as the biggest technological revolution since the internet sweep across America.
Specifically, on Nov. 30, 2022, AI research and deployment company OpenAI launched a brand-new conversational chatbot – ChatGPT. Its purpose? To create an AI that can do almost anything, and those mega cap companies want in on the action. Consider that since November:
- Microsoft – OpenAI’s biggest investor – has integrated ChatGPT’s technology into its Bing Search Engine, as well as its entire suite of productivity software, including Word, Excel, and PowerPoint.
- Alphabet has launched its own ChatGPT competitor, an AI chatbot called Bard.
- Chinese tech giants Alibaba (BABA) and Baidu (BIDU) have launched their own AI chatbots. So have countless other small/medium-cap tech firms.
- Alphabet referred to “AI” 45 times on its conference call.
- Microsoft referred to “AI” 39 times on its conference call.
- Meta referred to “AI” 30 times on its conference call.
- Tesla Inc. (TSLA) CEO Elon Musk called his company a major AI firm in its quarterly conference call, while Apple CEO Tim Cook said that AI will “affect virtually everything we do” in that company’s most recent conference call.
- Google search interest in artificial intelligence has soared to all-time highs, reaching levels about 10X where they were last year.
It’s obvious that companies investing in AI stand to profit – and quickly, just like Apple did when it introduced the iPhone in 2007.
Our colleagues Luke Lango and Eric Fry are ready to help investors profit from AI. To learn more about AI’s capabilities and how to leverage it in your own portfolio, join them tomorrow, Mar. 2, 2023, at 4:00 p.m. ET for the first-ever AI Super Summit.
In that presentation, Luke and Eric will discuss what AI is, how it works, what drives it, and why it’s only going to get better. They’ll also share how AI will change the world, what industries it will impact most over the next 12 months and, of course, which AI stocks are the best to buy right now.
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