Market Insights: ChatGPT Turns Two - A Nasdaq Performance Comparison

Milestone Wealth Management Ltd. - Dec 13, 2024

Macroeconomic and Market Developments:

  • North American markets were negative this week. In Canada, the S&P/TSX Composite Index fell 1.63%. In the U.S., the Dow Jones Industrial Average fell 1.82% and the S&P 500 Index dropped 0.64%.
  • The Canadian dollar fell again this week, closing at 70.2 cents vs 70.7 cents last week.
  • Oil prices rallied this week. U.S. West Texas crude closed at US$71.11 vs US$67.16 last week.
  • The price of gold increased this week, closing at US$ 2,667 vs US$2,656 last week.
  • The Bank of Canada announced its latest policy decision on Wednesday, dropping the overnight interest rate by 0.50% to 3.25%. The central bank said that the Canadian economy was weaker than their forecast, highlighted the rise of unemployment in November, and noted wage growth remained elevated.
  • Standard & Poor’s announced four additions to the S&P/TSX Composite Index. Aecon Group (ARE), Enerflex (EFX), NGEx Minerals (NGEX), and TerraVest Industries (TVK) will be added to the index starting Monday, December 23rd.
  • U.S. inflation data was released this week, with the Consumer Price Index (CPI) registering 2.7% for the past 12 months, up from 2.6% last month. Core CPI increased 3.3% from a year ago. Meanwhile, wholesale inflation in the U.S. rose unexpectedly in November, with the Producer Price Index (PPI) increasing 0.4% from the previous month and 3.0% for the past year. Excluding food and energy, the Core PPI rose 3.4% from a year earlier.
  • Boliden AB has agreed to acquire zinc and copper mines in Portugal and Sweden from Canadian company Lundin Mining (LUN) for as much as $1.52 billion. Also this week, Agnico Eagle (AEM) agreed to acquire O3 Mining (OIII) at $1.67/share in cash in a deal valued at ~$204 million.
  • Kroger’s $24.6 billion takeover of Albertsons has been blocked by a Federal Judge on antitrust grounds, finding the merger would inhibit competition and raise prices for US customers. Separately, shares of Walgreens Boots Alliance (WBA) soared after it was revealed that private equity firm Sycamore Partners is in talks to acquire the struggling drugstore chain.

 

Weekly Diversion:

Check out this video: Bitcoin as Explained by The Big Bang Theory

Charts of the Week:

As ChatGPT celebrates its second anniversary, it's fascinating to examine its impact on the tech industry and financial markets. The release of ChatGPT on November 30, 2022, marked the beginning of what many call the "AI Boom," and its effects on the Nasdaq Composite are particularly noteworthy.

Nasdaq's Impressive Gains

Since ChatGPT's debut, the Nasdaq has surged an impressive 79% over 506 trading days. This remarkable growth narrowly surpasses the 73% gain observed in the two years following the release of the Netscape web browser in December 1994. These two technological milestones stand out as the most significant catalysts for Nasdaq growth among major tech releases since 1980.

Historical Context

To put this in perspective, let's compare ChatGPT's impact to other groundbreaking tech releases (shown in the chart below):

  • Microsoft MS-DOS (1981)
  • AOL (1991)
  • Netscape (1994)
  • iPod (2001)
  • MySpace (2003)
  • iPhone (2007)

Source: Bespoke Investment Group

While all these innovations influenced the market, none matched the immediate impact of ChatGPT and Netscape on the Nasdaq's performance.

The Netscape Parallel

The similarity between the Nasdaq's reaction to ChatGPT and Netscape is particularly intriguing. Both triggered very comparable growth trajectories in their initial two years, as shown in the chart below. However, the Netscape era provides an interesting glimpse into potential future scenarios.

Source: Bespoke Investment Group

Looking Ahead: Early Innings of AI?

For those arguing that we're still in the early stages of the AI revolution, the Netscape comparison offers compelling evidence. Two years after Netscape's release, the Dot Com Bubble was just beginning to inflate. If the same pattern were to continue to hold, we might expect:

  1. A potential short-term pullback in the next 100 trading days
  2. A subsequent, more substantial rally

Historical Perspective

Examining the Nasdaq's rolling two-year percentage changes since the 1970s reveals that while the current growth is significant, it's not unprecedented. The periods following the releases of Netscape in 1994 and AOL in 1991 show similar patterns, as shown in the chart below.

Source: Bespoke Investment Group

As we reflect on ChatGPT's two-year milestone, its impact on the Nasdaq mirrors that of transformative technologies like Netscape. While past results don't guarantee future performance, the parallels with the 1990s tech boom are difficult to ignore. As AI continues to evolve and integrate into various aspects of our lives, its long-term effects on the market remain an important area to watch. The AI revolution, much like the internet boom before it, appears to be reshaping not just technology, but the entire economic landscape. As we stand at this juncture, the potential for continued growth and innovation in the AI sector seems boundless, potentially promising an exciting future for technology and investors alike.

Sources: CNBC.com, Globe and Mail, Financial Post, Bloomberg, Thomson Reuters, Richardson Wealth, Bespoke Investment Group

©2024 Milestone Wealth Management Ltd. All rights reserved.

DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner.