Stock Market Artificial Intelligence Showing Massive Systematic Risk

June 29 05:47 2022

With the S&P 500 officially entering close to bear market territory last week, down 20% from its January 3rd record finish, many investors are becoming concerned.

As of today, many of the banks have already said that the market has bottomed and is poised to return higher now that some of the froth has been shaved off. 

Just last week Dubravko Lakos, Global Head of Equity Research at JPMorgan told CNBC: “People are basically positioned for a recession. Our base case is that this is not going to be a recession in the next 12 months, and we think from that angle the portfolios are wrong footed.”

However, financial artificial intelligence is saying that those banks may be completely wrong.

John Anthony Radosta, an artificial intelligence engineer and FINRA investment law advisor, gives us another perspective shown by machine learning models run by the financial media provider, Synvestable.

“Last month, we saw something that we haven’t seen in awhile affect our machine learning models,” explains Radosta. “On June 7-9, we saw some pretty concerning systematic risk entering the market that is reminiscent of around March 2020.”

“What we’re seeing is a correlation happening across assets that are historically uncorrelated, moves that have not been seen since March 2020,” continued Radosta.

The phenomena he describes is that in March 2020, assets from stocks to gold began moving together in tandem instead of independently and crashed downwards 26% in total, leaving investors with no alternative safe harbors.

According to Radosta, those correlations are starting to show up again, as assets that typically move independently are starting to move together again.

“What we think is happening when uncorrelated assets start to move together is that it’s a sign of market structure breaking down, and a sign of onset systematic risk. You cannot diversify away systematic risk, and there could be some further downside to every asset class until market structure can right itself again.”

Back in April 2022, the 2-year and 10-year Treasury yield curves inverted, which historically has been a sign of broken market structure and a 100% correct predictor of a substantial downturn within one year.

Radosta declined to call a bottom for the stock market, however, cautions that investors need to tread carefully right now and focus on watchlists for the time being.

“The good news is that this can be an excellent opportunity to start researching what companies you want to own when we finally reach market stability, because we think all these great companies are about to go on sale,” Radosta said. We’ll continue covering the market as things further develop.

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Company Name: Synvestable
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Country: United States