Markets

Black Swans: 9 Recent Events That Changed Finance Forever

Published

7 years ago

October 5, 2016

Jeff Desjardins

Almost every market participant out there has at least one horrific war story on a crash that profoundly affected their portfolio or world view.

For example, one unnamed stock broker I know had himself and his clients in a soaring gold stock called Bre-X in 1997. There was way less connectivity at this time, and this person was on a trip to Vegas for some sun and fun. Staying at Caesar’s Palace, he went out for a short while as the stock was trading near its highs of $286.50 per share.

When he got back to the hotel, he found out that news had already spread quickly: during a due diligence test, mining company Freeport had twinned seven drill holes, finding not even a trace of economic gold. The deposit was not real, and panic swept the market. His hotel phone had been ringing off the hook for three hours but he missed all the calls. Shares plummeted 83% that day, but he was already too late to get out of the stock.

It’s easy to rationalize the series of events that led to the fall of Bre-X in hindsight, but at the time many traders and experts like this broker were caught by surprise. A company worth around $4.5 billion basically went to zero almost overnight as its claim of 70 million ounces of gold vanished into thin air. That’s a “black swan”, and this one in particular changed the mining and finance industries forever.

Black Swans: 9 Recent Events That Changed Finance Forever

The following infographic comes to us from Call Levels, and it highlights nine other recent “black swan” events that will have a lasting impact on how investors approach markets.

These events range from the Asian financial crisis of 1997 to the more recent Brexit panic that occurred in June 2016.

Black Swans: 9 Recent Events That Changed Finance Forever

Note: we are aware that some of these may not meet the “technical definition” of black swans, but they do meet the more colloquial meaning used today by many people in the markets.

Related Topics:black swans brexit crisis financial crisis

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Technology

Just 20 Stocks Have Driven S&P 500 Returns So Far in 2023

From Apple to NVIDIA, megacap stocks are fueling S&P 500 returns. The majority of these firms are also investing heavily in AI.

Creator Program

Published

4 days ago

May 24, 2023

Dorothy Neufeld

Just 20 Stocks Have Driven Most of S&P 500 Returns

Just 20 firms—mainly AI-related stocks—are propping up the S&P 500 and driving it into positive territory, signaling growing risk in the market.

The above graphic from Truman Du shows which stocks are making up the vast majority of S&P 500 returns amid AI market euphoria and broader market headwinds.

Big Tech Stock Rally

Tech and AI stocks have soared as ChatGPT became a household name in 2023.

The below table shows data from last month, highlighting that just a small collection of companies drove most of the action on the U.S. benchmark index.

Company Rank	Name	Contribution to S&P 500 Return	Average Weight
1	Apple	1.49%	6.61%
2	Microsoft	1.15%	5.72%
3	NVIDIA	1.00%	1.62%
4	Meta	0.66%	1.15%
5	Amazon	0.51%	2.56%
6	Tesla	0.50%	1.39%
7	Alphabet (Class A Shares)	0.34%	1.72%
8	Alphabet (Class C Shares)	0.31%	1.53%
9	Salesforce	0.19%	0.51%
10	Advanced Micro Devices	0.16%	0.39%
11	General Electric	0.10%	0.28%
12	Visa	0.10%	1.08%
13	Broadcom	0.09%	0.73%
14	Intel	0.09%	0.35%
15	Walt Disney	0.08%	0.55%
16	Booking Holdings	0.07%	0.28%
17	Exxon Mobil	0.06%	1.37%
18	Netflix	0.06%	0.44%
19	Oracle	0.06%	0.40%
20	Adobe	0.06%	0.49%
	Top 20 Companies	7.05%	29.17%
	S&P 500*	7.55%	100.00%

*Based on the Vanguard S&P 500 ETF as of April 11, 2023. Source: Vanguard S&P500 ETF, Bloomberg.

Microsoft invested $10 billion into OpenAI, the creators of ChatGPT. It has also integrated generative AI into its search engine Bing. This large language model is designed specifically to make search capabilities faster, generate text, and perform other automations.

Also of interest is NVIDIA, which is the most valuable chipmaker in America. It sells $10,000 chips called A100s that allow machine learning models to run. These models perform multiple tasks simultaneously to develop neural networks and train AI systems, including OpenAI’s ChatGPT. Companies that are developing AI-related services, such as chatbots or image generation, may use up to thousands of these chips.

Despite being the world’s most valuable company and a key driver of returns, Apple is an outlier among tech giants with no major projects announced in AI (so far).

Implications of Market Divergence

The problem with the strong gains seen in a few select AI-related stocks is that it clouds wider stock market performance.

Without the AI-led rally, the S&P 500 would be returning -1.4%. as of May 17, 2023.

4. AI is fueling the stock market

A handful of stocks are spearheading the S&P 500's impressive 9% rally this year.

Here’s the kicker: if you excluded AI stocks, the S&P 500 would be down over 1% (according to Societe Generale). pic.twitter.com/SME1mJVpoW

— Rowan Cheung (@rowancheung) May 22, 2023

This form of steep divergence, known as market breadth, often signals higher risk in the market.

When more companies experience positive returns it is less risky than a small handful seeing the majority of the gains. Today market breadth is very narrow, and these companies make up over 29% of the entire index’s market capitalization.

How long AI-related firms mask the broader performance of the S&P 500 remains to be seen. A growing number of market pressures, from higher interest rates to banking uncertainty could add further challenges.