The implications of AI hype for asset returns

Q2 looks set to go down as a decisive victory for “risky” assets over “safe” ones, thanks in large part to euphoria in the stock market over Artificial Intelligence (AI). But we suspect that the story over the remainder of 2023 will be rather different, with safe assets regaining some ground on risky ones. After all, while we think AI has brightened the outlook for the stock market, we still expect equities to falter over the rest of 2023 as the US and other advanced economies tip into recession and risk appetite sours; and, at the same time, we think sovereign bonds will rally as investors discount earlier and/or more aggressive easing from central banks.