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Retrospective and Prospective Part Two – the AI Version

WordCloud versus Artificial Intelligence (AI)

In Retrospective and Prospective part one, our Director of Fixed Income Research, Chris Proctor, created a WordCloud using the team’s writing from 2023 to lift out significant topics discussed throughout the year, as well as emerging themes on the periphery which have potential to be core in 2024. Using this technique, emerging macro themes included unemployment and fiscal spending, while emerging micro themes included credit markets and the consumer. Markets are worried about when (some would say if!) the economy responds to higher rates in 2024, and the emerging themes suggest our team had started writing about related topics last year. I’m confident we’ll be all over these market moving topics in 2024.

As a follow up on Chris’ WordCloud, we decided to take all of our 2023 research and run it through Generative AI1 to get an alternative view of where we focused our writing, asking the AI to identify the major recurring themes. The Generative AI we used came up with eight significant themes we returned to over the course of 2023.

  1. Real Estate Market Evolution: The real estate sector is witnessing a transformation, particularly in commercial real estate, due to rising interest rates and refinancing challenges. While public Real Estate Investment Trusts (REITs) show resilience with stronger balance sheets, private real estate investors face more significant refinancing difficulties. The sector offers growth and diversification opportunities, but careful valuation and market understanding are essential.

  2. Equity Market Concentration and Opportunities: The equity market has experienced a concentration of returns in large-cap growth stocks, especially those benefiting from AI advancements. However, this concentration leaves room for diversification and opportunities in quality investments outside the dominant players. Active management and a focus on fundamentals are crucial in this environment.

  3. Impact of Central Bank Policies: Central bank policies, particularly those of the Federal Reserve, play a significant role in shaping market dynamics. The relationship between Federal Reserve actions and broader financial conditions is evolving, necessitating a wider lens for investors beyond short-term interest rate movements.

  4. Economic Growth and Recession Risks: Predictions of economic recession contrast with data suggesting potential economic reacceleration into 2024. Factors such as improving sentiment indicators and robust structural elements like the Wealth Effect and Labor Markets suggest a softer economic landing, though reliance on lagged data should be approached with caution.

  5. Carbon Markets and Environmental Investments: The growth of carbon credit markets, driven by voluntary and compliance initiatives, presents new investment avenues. As private industries contribute to market growth, opportunities in climate change-combatting efforts are emerging, aligning with broader environmental trends.

  6. Fixed Income Market Strategies: The fixed income market is facing volatility due to shifting economic indicators and interest rate expectations. Investors are encouraged to use frameworks like the yield curve progression cycle to strategically position their fixed income portfolios, balancing potential risks and emphasizing high-quality credit.

  7. Technological Advancements and AI: The rapid advancement in AI technology, highlighted by developments like ChatGPT2, has significant implications for investment, especially in sectors supporting AI infrastructure. This trend underscores the pivotal role of technology in shaping investment opportunities and the need to adapt investment strategies accordingly.

  8. Global Economic Policies and Fiscal Implications: The global economic landscape is influenced by various fiscal policies, including the US debt ceiling issue and the Federal Reserve's monetary policy. These policies significantly impact market dynamics and investor sentiment, indicating the need for vigilance and strategic flexibility in asset allocation and investment decisions.

A few of these dominant themes are evergreen – the economy, central bank policy, asset class views and fiscal policy will remain staples of our research and writing. Other topics like AI, carbon markets and real estate will expand into a deeper dive or morph into other emerging themes of market focus. Regardless, our team has enjoyed thoughtfully looking back at 2023 while thinking ahead about what will move markets in 2024.


Important Disclosures & Definitions

1 Generative AI: a type of artificial intelligence technology that can produce various types of content, including text, imagery, audio and synthetic data.

2 ChatGPT (Chat Generative Pre-trained Transformer): a chatbot developed by OpenAI and launched on November 30, 2022. Based on a large language model, it enables users to refine and steer a conversation towards a desired length, format, style, level of detail and language.

AAI000560  01/02/2025

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