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The main reason I’ve bought equities again

US stock valuations only make sense if you believe in AI
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{"text":[[{"start":5.6,"text":"The first thing you notice upon arriving at our house is the silence that comes from living in a national park. I never knew I had creaky knees, people complain. Or, bugger me, I’ve actually got low-level tinnitus!"}],[{"start":18.2,"text":"Next is too many books, but no television (I hate the noise TVs make, although I hear they’re popular). Finally, an absence of mirrors is commented on. Sure, I often leave the house with children’s paint on my face. In my mind, though, I am rocking it."}],[{"start":34.36,"text":"Until I catch a glimpse of my mug in a window or friend’s downstairs loo. Who’s that old bloke? Likewise, I’ve recently seen videos of my sublime one-handed backhand and golf swing. Never again."}],[{"start":46.54,"text":"Frankly, I prefer to be deluded. Except with investing, where truth is essential. Indeed, it was the best thing about being a professional money manager. The numbers are the numbers and no amount of bullshitting can hide a quarter of underperformance."}],[{"start":60.92,"text":"Therefore, I’ve created a new tab in Excel to see whether I would have been better off not ditching my equities last October versus when I bought them back almost a month ago. With the exception of UK small-caps, the answer, sadly, is yes, to the tune of 2.5 per cent — or about fifteen grand."}],[{"start":78.96,"text":"In other words, despite my thinking I was a clever devil re-entering the market just before the low in late March, in most cases I paid a higher price than I sold at."}],[{"start":88.34,"text":"So an uglier picture in the looking glass yet again. But hang on a minute, I can torture this metaphor further! It’s not the same portfolio in the mirror any more. I’ve dressed it up with some US and Latin American stocks. Some attractive bonds are also new."}],[{"start":103.54,"text":"All of this has produced a prettier reflection. My net asset value is now above where it would have been if I’d kept my original one all the way through to today. Not by much, but it makes me feel better nevertheless."}],[{"start":114.76,"text":"My LatAm and Asian funds are already up 13 and 9 per cent respectively. Meanwhile, I’ve bagged a 7 per cent return in the US, Japan and the UK — everything in pounds, remember. The exact securities and exposures will be revealed in a couple of weeks. And, of course, everything may crash with a single utterance from Donald Trump."}],[{"start":135.96,"text":"Still, I was sitting with £643,000 in cash three weeks ago as missiles were flying and that’s increased to £685,000 now. Year to date it’s a 7 per cent return compared with 2 per cent for the S&P 500 in sterling and 3 per cent for a comparable balanced index."}],[{"start":157.12,"text":"It’s been an incredible bounce, to be honest — and another fluke really that I managed to catch hold of it. Over the past quarter of a century, for example, US stocks have only leapt by a tenth as fast a couple of dozen times."}],[{"start":170.28,"text":"What also makes this rebound extraordinary is that it is not really a rebound at all. As a widely circulated chart by 3fourteen Research clearly shows, the most rapid rallies tend to come after prolonged bear markets or after a major crisis. During this war, shares are barely down 10 per cent."}],[{"start":188.5,"text":"That’s what made it so hard for me to press the button. It wasn’t the no-brainer it was in 2009 or during the pandemic. I mentioned in this column last month that valuations had declined further than prices and this was a possible reason for liking equities again. I intend to return to this topic in more detail in coming weeks because it deserves to be scrutinised — especially as US stocks are still expensive on the measures I prefer."}],[{"start":214.3,"text":"So there must have been something else that changed my mind. And yes, there was. It was a nagging sense that artificial intelligence — for example the OpenClaw-like digital assistant I named Vicky that now manages my diary and emails — may finally be the real deal when it comes to turbocharging productivity."}],[{"start":232.08,"text":"The anecdotal evidence is everywhere — if not in the economic data yet. Most important to my mind, however, is that the Middle East seems to have hidden a shift in narrative when it comes to AI infrastructure spending."}],[{"start":243.76,"text":"Only recently, we worried that all those new data centres would lead to massive overcapacity and eventual write-offs — like so many investment bubbles of yore. The so-called hyperscalers are projected to spend three- quarters of a trillion dollars this year on buildings that go hum."}],[{"start":262.52,"text":"Big scary numbers. Now, however, the stories grabbing the headlines are all about the potential lack of computing power — including outages at Anthropic — as AI usage explodes. Go on, hands up who isn’t using ChatGPT or Claude way more than even six months ago?"}],[{"start":278.12,"text":"Markets have noticed too. The price of credit default swaps on companies exposed to the overbuild story — look up CoreWeave, say — has begun to decline since the beginning of April. The Nasdaq index hit new all-time highs this week."}],[{"start":292.44,"text":"All this matters because only a productivity surge can justify the valuation of US stocks, in my view. And, therefore by implication, the current levels of other equity markets too, which would be dragged lower if the US tech sector cracked."}],[{"start":307.24,"text":"I’m not totally convinced. This week’s news that a failed shoemaker is pivoting to “AI infrastructure” has insane bubble written all over it. But humanity is long overdue something to come along and make us more efficient after decades of humdrum productivity growth."}],[{"start":323.04,"text":"Could AI be it? Could this explain the rebound in shares despite a fragile truce and still-elevated oil prices? For now, I’m betting yes."}],[{"start":332.44,"text":"The author is a former portfolio manager. Email: [email protected]"}],[{"start":null,"text":"
Stuart Kirk’s holdings
Assets (£)WeightingTotal returns YTD
Fidelity Cash Fund (acc)643,341100%0.7%
S&P 500 (GBP)-2.8%
Morningstar GBP Allocation 60-80% Equity-0.1%
Due to trading activity this table will be updated on May 1, in accordance with the column rules
"}],[{"start":340.84,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776480422_8834.mp3"}

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