Investing

The Big Emerging Investment Theme

Jack Miller

We speak with Jack Miller, head of Global Execution Services at Baird, about the big emerging theme for investors and what they should know about it. Miller also shares how markets are performing despite macro uncertainty and AI’s implications for trading and market structure.

How are you evaluating the current market environment and performance?

We’ve been operating in a macro-driven environment for most of the year, watching the actions of the Fed and scrutinizing economic data to determine whether a recession can actually be avoided despite the flashing indicators. Despite all the news flow, overall U.S. equity volumes have been stable, and volatility has retreated to the lowest range we have seen since the start of the pandemic.

Institutional activity has been relatively muted, which is kind of a hidden story in the tape when you consider retail-driven phenomenon like meme-stock investing and zero-day to expiry options continue to add to the overall volume picture.

How have markets performed this year – digesting the Fed, banking crisis, inflation, etc?

Remarkably well. Even though popular indices had been in retreat in August, they have still been rising for most of the year despite these macro fears. Still, we haven’t seen a prolonged period without ultra-low interest rates since before the global financial crisis, and the impact of that paradigm shift remains to be seen.

What are some emerging investment themes?

The big emerging theme is Artificial Intelligence AI. While not a new technology per se, recent advances have allowed AI to make an impact in domains that previously required human intelligence, including creative fields like literature, art and music.

Many of these applications are very tangible and consumer-oriented – you can literally see and appreciate the output – unlike other recent trends like blockchain or cloud computing which exist more in the plumbing. It's also evolving astonishingly quickly. As such, AI has quickly worked its way into conversations across the investing world as the popular zeitgeist.

Artificial Intelligence AI is being seen as a big investment opportunity now. Why is that?

AI has the potential to disrupt pretty much any corner of our society that you can think of. Aside from the obvious implications within the tech sector, we can think about what it means for consumer products, drug development, manufacturing, transportation, defense, entertainment – look at the Hollywood strike!

So investors are looking for novel ways to play the space and companies are looking to align their strategies and positioning to capitalize on this trend.

What are your thoughts on AI and its impact on investors?

Aside from being an investable theme, AI has the potential to disrupt the process and business of investing as well. If AI can pass a bar exam, it makes me wonder how effectively it can interpret an earnings release, produce investment research, or manage a portfolio (indeed, academics at MIT have proposed a “New Turing Test” that would evaluate an artificial intelligence by whether it can earn $1 million investing). The regulatory implications of this for broker dealers and investment advisors are also as of yet unclear.

What are AI’s implications for trading and market structure?

AI has already been effectively deployed in the trading domain in terms of using machine learning to improve execution performance by tuning algorithms or optimizing matching engines. When dealing with larger, institutionally-oriented transactions, we do start to run into some of the limitations of the technology, namely the need for adequate sample sizes to train learning models, and also the “determinism” problem, which I would characterize as the need to retroactively “explain” why certain decisions were made.

For now at least, we’ve seen the biggest impact on micro-decisions where there is a sufficient sample to effectively deploy the technology.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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