Let’s Ask ChatGPT 

Has Goldilocks come to the rescue? 

The favorite fairy tale of investors is no doubt the story of Goldilocks who kept looking for the just right mix of porridge, chair, and bed in the house of the three bears.   Investors long for the perfect mix of steady economic growth, strong earnings, low unemployment, low inflation, and a benign level of interest rates.  The Goldilocks story was taking shape for most of January as inflation reports showed deceleration and overall earnings have come in not quite as weak as feared.1 The markets therefore rallied with the S&P 500 up 6.7% for the year through February 10.2 The Goldilocks scenario is particularly good for increasing the valuations of growth stocks, and the Nasdaq had its best January since 2001, up 10.7% for the month.3 

Does the Fed buy into the fairy tale? 

The Federal Reserve raised overnight lending rates by 25 basis points to 4.5% on February 1.  For the first time Fed Chair Powell acknowledged slowing price increases when he stated, “We can now say, I think, for the first time that the disinflationary process has started.” While we are closer to the end of rate hikes, it is not clear exactly how many more times the Fed will raise rates–it will depend largely on the inflation and employment data in the coming weeks and months.4 

Just two days after the announcement, the jobs report for January showed a much larger increase in jobs than expected and the lowest unemployment rate (3.4%) since 1969, which threw a wrench into the Goldilocks story.5 The Fed, investors fear, may have to raise rates even higher and keep them there for longer to knock out inflationary pressures more definitively.  My sense is that Jay Powell is not that into fairy tales, and at least some correction of the New Year rally may already be underway.    

Is it live or ChatGPT? 

For those of us of a certain age, you may recall the ad campaign, “Is it live or is it Memorex?” from the 1970s. Memorex was brand of audio cassette tapes where the recording quality claimed to be as good as a live performance.   The introduction to the marketplace of ChatGPT, a breakthrough in the practical application of artificial intelligence, takes us from internet search to internet content creation.  Need an essay on the history of the Cold War?  How about a poem to romance your sweetheart on Valentine’s Day?  Maybe a letter to impress your investment advisory clients?  Just ask ChatGPT and in seconds the text is ready.  I really am writing this letter…really.    

While English and history teachers are freaking out, software to detect what is written by humans versus ChatGPT has already been released by OpenAI, the creator of ChatGPT.   Microsoft is a major investor in OpenAI and will have the software integrated into its search engine, which has propelled that stock in recent days.  Alphabet’s Google has rushed to market its competitor, Bard, which made some errors at its public introduction, causing a sell-off in those shares.   The artificial intelligence battle is certainly heating up amongst the major players.   

For consumers and businesses, a new bump in productivity may be upon us which could help alleviate structural pressures in the labor market.   Examples where ChatGPT is a great help include resume writing and cover letters, real estate listings, the explanation of complex issues, and much more robust, nuanced, and accurate language translation.   

Less Uncertainty in ‘23?  

While many of the headwinds of 2022 still linger around inflation, earnings, and the war in Ukraine, there is growing confidence that some of the worst outcomes predicted for this year are less likely to occur, whether that be uncontrolled inflation and/or a total collapse in corporate profits.  Fed policy has more clarity, and it hard to see major changes happening in tax and regulatory policy given our divided government.    

Unpredictable events are just that, and some are horrific like the devastating scale of death and destruction in the Turkish/Syrian earthquake.  When markets fall, investors tend to overweight the negatives.  As those negatives do not materialize, markets recover sharply as we saw in January.  If some equilibrium of the positives and negatives develops here, just maybe markets can calm down for an extended period, and Goldilocks can hang around for a while.  Is it wishful thinking?  We’ll see.  Maybe ChatGPT can figure it all out.   

Please take good care. 

John Bussel 

Chief Investment Officer  

1 Krantz, Matt. “Earnings Season Not as Awful as Some Feared.” ABC News, 11 Feb. 2023, abcnews.go.com/Business/story?id=4770137. 
2 Source: Morningstar Direct. Data as of 2/10/23. 
3 Zhang, Hannah. “A Strong January Could Mean a Better Year to Come — Here’s Why.” Institutional Investor, 7 Feb. 2023, www.institutionalinvestor.com/article/b8xc2hj5f84ywg/A-Strong-January-Could-Mean-a-Better-Year-to-Come-Here-s-Why. 
4 Jasinski, Nicholas. “Fed Chair Jerome Powell Says the ‘Disinflationary Process’ Has Begun.” Barron’s, 7 Feb. 2023, www.barrons.com/articles/fed-chair-jerome-powell-speech-talk-live-today-51675787406. 
5 Mutikani, Lucia. “U.S. Reports Blowout Job Growth; Unemployment Lowest Since 1969.” Reuters, 4 Feb. 2023, www.reuters.com/world/us/us-job-growth-accelerates-january-wage-gains-moderate-2023-02-03. 

Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein. Certain information contained herein constitutes forward-looking statements. Team Hewins does not guarantee the achievement of long-term goals in the portfolio review process. Past performance is no guarantee of future results, and a diversified portfolio does not guarantee a positive outcome. Nothing contained herein may be relied upon as a guarantee, promise, assurance, or a representation as to the future.