Update Equities: AI disruption fears continue to concern investors
After last week’s volatility, when stocks sold off sharply on fears about the disruptive potential of artificial intelligence (AI), markets showed clear signs of recovery at the beginning of this week.
Tech shares rebounded, led by semiconductor names. Nvidia, AMD, Broadcom and Teradyne all rose as investors saw the previous week’s sell‑off as overdone. Unfortunately, on Thursday, concerns about AI disruption came back into the market and tech stock prices became under pressure again.
We are still in the middle of earnings season, with about 60% of companies in the S&P 500 index having reported their quarterly results. Market reaction to company results in the current earnings season has been very strong, with large share-price swings.
Insurance companies and wealth managers faced notable selling pressure after concerns emerged around a newly launched artificial intelligence tool. The S&P 500 insurance brokers sub‑index fell by roughly 9% on Monday in response to news that the privately held online insurance marketplace Insurify had unveiled a new application using ChatGPT to compare auto‑insurance rates based on factors such as vehicle characteristics, credit history and driving records. However, we believe the market reaction was excessive. AI is more likely to enhance than harm the sector, due to improvements including greater efficiency, improved underwriting and better customer engagement.
There were also positive surprises this week. Supermarket giant Ahold Delhaize reported quarterly results that exceeded expectations, as both sales growth and profit margins in the US and Europe were higher than anticipated. Underlying profit and earnings per share also beat analyst forecasts, enabling the company to raise its dividend and strengthening confidence in its outlook.
The Dutch healthcare company Philips likewise delivered much stronger‑than‑expected quarterly results, supported by solid organic sales growth, a 7% increase in its order book and a sharply higher operating margin driven by strong pricing performance.
Finally, macroeconomic data was mixed. An initial reading showed that US retail sales stalled, reinforcing expectations of potential rate cuts later this year. However, later in the week, a stronger‑than‑expected US jobs report tempered those expectations.