Why You Should Avoid Indexes And Bet In AI

This article about indexes was written by Gabriel Plat, a Financial Analyst at I Know First.

Indexes

Summary

  • Indexes registered positive results in October, but September was marked by negative returns;
  • Big Tech Stocks may be behind the negative performance;
  • There are concerns about positive growth for the indexes in the near future;
  • The I Know First algorithm is the best way to avoid losses in your portfolio.

Indexes Are Recovering, But…

By the time I am writing this article, the main indices are registering positive results. Between October 13 and 19 we could see positive results from three of all major indexes. S&P 500 increased 3.9%, Dow Jones Industrial Average (DJIA) rose 3.2%, and Nasdaq Composite Index 4.6%. These numbers may seem attractive for those looking for safe and solid investments, but the reality can be the exact opposite.

Before that, those indexes were plunging. September marked as a bad month, as all of the indices mentioned registered at least a 3.0% deficit by September 20.

Indexes
(Figure 1: U.S. Major Indexes Performance Over September)

The three major U.S. indexes suffered their worst quarterly performance since the pandemic began by the beginning of 2020. Taking only a month into consideration, the results of the S&P 500 and Nasdaq were the worse since March 2020. For Dow Jones, the decline was the highest since October 2020.

But what is the reason for this price decline?


What Is Behind The Negative Trend?

About ⅕ of S&P 500 is accounted for Big Tech stocks. In other words, companies such as Apple, Microsoft, Facebook, Amazon, and Alphabet (Google) weigh heavily on the index performance. And looking at their results from September is easy to see the reason behind the indexes drops.

Indexes
(Figure 2: Big Tech Stocks Performance Over September)

Of all companies mentioned above, Apple registered the biggest decrease during September, a 6.0% loss. Facebook came close with a 5.7% deficit, while the others stood between 1.7% and 2.9% drop. The reasons for these numbers are diverse. For example, Apple had some concerns in its supply chain which may lead to shortages of iPhone materials, while Amazon is being accused of manipulating search results in India.

Moreover, the indexes will be impacted by the earning season. As we mentioned in our newsletter, there is an expectation for the negative trend to continue. The reason for this is the concerns over inflation and the pandemic and how they can affect the companies’ earnings in the near future.


Do Not Worry About the Indexes, We Have a Solution

Although indices may seem a less risky investment, there are mechanisms that provide investors to potentialize their portfolios. The I Know First algorithm has proved to be a strong option.

By using machine learning and over 15 years of stock database, the algorithm provides outlooks for different stocks in different time horizons, for both short and long positions. The results over the years prove that our artificial intelligence is able to beat indexes consistently, no matter the assets or the time horizon invested.

Indexes
(Figure 3: Algorithm Performance Versus the S&P 500)

The image above shows us the results from one of our packages in a 14 days span. Between September 19 and October 2nd, exactly the period when the S&P 500 was losing 2.61% of its value, our AI-powered algorithm managed to correctly predict an 8.54% overall average return to our clients. In other words, the algorithm predictions not only overcome the negative trend but also provided returns up to 15.58% in the same period.

Plus, this was not exclusive to one single package. Some recent examples include packages such as Energy Stocks and Stocks Under $10, both generating positive results during a negative period from indexes. For the Big Tech stocks as mentioned above, a recent report shows that the I Know First Algorithm is exceeding the S&P 500 benchmark index across all signal filtering subsets and forecasting periods in most groups. In other words, our AI consistently generated returns above the main indexes during this time period.

(Figure 4: The Investment Result for the period from 31st May 2020 to 3rd October 2021)

Conclusion

In general, investors who are not willing to take higher risks are attracted by indexes because of their low-risk profile. Recently, we saw the main indices from the United States registering losses, being pushed by the performance of big tech stocks. Inflation and supply chain concerns affected these stocks, which may lead to a performance below average. As consequence, indexes’ performance may struggle in the near future.

Taking advantage of an AI-powered algorithm, I Know First can help investors who are concerned about this. From the examples shown above, the algorithm was able to generate positive returns at the same time the indexes were plunging. All in all, the I Know First algorithm helps all kinds of investors boost their portfolios.


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