Market Liquidity, 0DTE Options, and the New Volatility Paradigm

Darius recently sat down with Brent Kochuba of SpotGamma for a fascinating discussion on how options-driven leverage, zero-day options (0DTE), and shifting market structure are reshaping investment opportunities. If you missed it, here are the three most important takeaways that could significantly impact your portfolio:

1) Short-Term Leverage Is Driving Market Volatility—But It’s Not Changing the Trend

The explosion of 0DTE options and leveraged derivatives trading has created frequent, extreme price dislocations in individual stocks and the broader market. Brent explains how these short-term trading flows cause sharp intraday swings, leading investors to misinterpret market reactions to news events like CPI reports or earnings releases. However, while these distortions can be dramatic, they rarely change the medium-to-long-term market trend—meaning that many investors are getting shaken out of positions unnecessarily.

Key Takeaway:

Don’t overreact to short-term volatility. While markets may experience more frequent and violent moves due to the explosive growth of options activity, the underlying trend remains the dominant force. Investors who focus too much on short-term swings risk missing out on durable market trends.

2) Volatility Is Cheap—But That Presents Opportunities

Despite recent market swings, implied volatility remains historically low, signaling that investors are not properly hedging against risks. Brent highlights how right-tail risks (markets moving much higher) are currently underpriced, making call options a compelling opportunity. On the flip side, selective put spreads can offer inexpensive downside protection for investors looking to hedge without taking on too much drag.

Key Takeaway:

With volatility low, this is an ideal time to consider hedging strategies or capitalizing on underpriced upside exposure. Call options on key indices and AI-driven names may provide attractive asymmetric returns, while put spreads allow for cheap downside protection.

3) AI, Passive Flows, and ETF Growth Are Creating Liquidity Holes

Market liquidity is shrinking as passive flows, corporate buybacks, and structured products absorb more of the tradable float in major stocks. This means that even mega-cap names like NVIDIA can experience massive, seemingly irrational price moves (e.g., its recent $500 billion single-day market cap loss). These liquidity gaps are amplifying the impact of leveraged derivatives trades, creating both risks and opportunities for investors.

Key Takeaway:

Investors should be aware that liquidity holes are becoming more common, leading to sharp, unexpected market moves. Understanding how options-driven leverage interacts with ETF flows and passive investing is key to avoiding getting caught on the wrong side of a move—or capitalizing on mispricings when they occur.

Final Thought: The Time to Act Is Now

Markets are evolving rapidly, with AI, derivatives trading, and liquidity trends playing an increasingly dominant role. As these forces reshape market behavior, traditional risk management strategies are becoming less effective. Investors need adaptive tools—like our KISS Model Portfolio and Discretionary Risk Management Overlay (Dr. Mo)—to stay ahead of these changes and profit from the volatility rather than being caught off guard by it.

Since our bullish pivot in January 2023, the QQQs have surged 90% and Bitcoin is up +316%.

If you have missed part—or all—of this market, it is time to explore how our KISS Model Portfolio or Discretionary Risk Management Overlay aka “Dr. Mo” will keep your portfolio on the right side of market risk going forward.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

Thousands of investors around the world use 42 Macro to confidently navigate market shifts and optimize their portfolios. If you’re ready to incorporate macro into your investment process and stay ahead of these monumental changes, we invite you to watch our complimentary 3-part Macro Masterclass.

The Macro Class

How Will Trumponomics 2.0 Impact Investor Portfolios?

Darius recently joined Charles Payne on Fox Business to discuss the potential impact of President Trump’s economic agenda on asset markets, the importance of observing the market rather than predicting it, and more.

If you missed the interview, here are the three most important takeaways fromthe conversation that have implications for your portfolio:

1) How Will President Trump’s Economic Policies Broadly Impact Markets in 2025?

When assessing the impact of President Trump’s economic agenda, both positive and negative effects on the economy and asset markets are likely.

Specifically, factors such as tariffs, securing the border, and a hawkish shift in Treasury net financing (i.e., less bills + more coupons) are likely to contribute negative supply shocks to the economy and asset markets. Conversely, tax cuts, deregulation, and accelerated energy production could generate positive supply shocks.

Investors should closely monitor the size, sequence, and scope of these policy changes, as they will play a crucial role in shaping asset markets throughout 2025.

2) What is The Likely Impact of Tariffs on Asset Markets?

Although many Wall Street investors cite the Smoot-Hawley example when discussing tariffs, we believe anchoring on that scenario is misguided. The real impact lies in the currency market. China is likely to respond to fresh tariffs by significantly devaluing the yuan, which carries profound implications for global asset markets. Historically, when China devalues the yuan, other major economies follow suit with sympathy devaluations to maintain competitiveness, resulting in a much stronger U.S. dollar.

If a similar pattern emerges in 2025, this would likely lead to a reduction in global liquidity, which is problematic for asset markets in the context of the global refinancing air pocket that may develop later this year.

3) Should Investors Focus On Observing The Market Rather Than Predicting It?

In short, yes. Our number one piece of advice for every investor is: Listen to what the market is telling you. Because asset markets trend far more frequently than they experience changes in trend, it is always best to align your portfolio with what the market is trying to price in, not against it. The trend is your friend.
Whether we are in an inflationary or deflationary environment, the most consistently successful strategy across all market conditions is trend following.

To successfully remain on the right side of market risk, investors must rely on signals from proven risk management systems (e.g., KISS and Dr. Mo) far more than their gut feel, emotions, or understanding of company or economy fundamentals.

Since our bullish pivot in January 2023, the QQQs have surged 81% and Bitcoin is up +328%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just macro insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Best of luck out there,
— Team 42

Will Risk Assets Crash In 2025 Like They Did In 1998?

Darius recently joined Adam Taggart to discuss the likelihood of significant deficit reduction during President Trump’s administration, a potential global refinancing air pocket, and more.
If you missed the interview, here are the two most important takeaways from the conversation that have significant implications for your portfolio:

How Likely Is A Significant Reduction Of The Federal Budget Deficit Amid DOGE And Tax Cuts?

Although we believe DOGE is likely to achieve meaningful fiscal expenditure reduction, our analysis of U.S. federal budget dynamics highlights significant challenges to achieving meaningful deficit reduction. Cutting spending ≠ cutting the deficit, once extending and expanding the Tax Cuts and Jobs Act (TCJA) are accounted for.

Our research indicates that approximately 61% of the federal budget is effectively untouchable. This includes FFTT’s “True Interest Expense” metric, which comprises Medicare, National Defense, Net Interest, and Social Security. Collectively, these expenditures represent programs that are unlikely to face cuts amid the current populist political climate and are compounding at a rate of +13% per year. The remaining 39% of the budget has already been shrinking at a compound rate of -12% per year over the past three years.

Given these dynamics, we believe meaningful deficit reduction appears improbable without tackling politically protected categories.

Is A Global Refinancing Air Pocket On The Horizon?

At 42 Macro, we conducted a deep-dive empirical study on the global refinancing cycle and found it to be correlated with the global liquidity cycle. Currently, the lagged growth rate of global non-financial sector debt is accelerating sharply, and our models project this trend to continue through late 2025.

While conventional wisdom suggests this is likely to catalyze an increase in global liquidity, the risk remains that liquidity may fail to expand meaningfully, thus creating a global refinancing air pocket, similar to the divergences observed in 2008-09, 2011, 2015-16, 2018, and 2022, where the S&P 500 declined between 15% and 57%.

If global liquidity fails to follow the path of the year-over-year growth rate of world total non-financial sector debt, we believe it is likely to lead to severe disruptions—or even a meltdown—in global financial markets. However, we ultimately expect the dip will be bought because investors will finally find attractive valuations to bet on the AI supercycle amid tax cuts and deregulation. 1998 is a good analogy for how we are approaching financial market risk in 2025.

Since our bullish pivot in November 2023, the QQQs have surged 44% and Bitcoin is up +201%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Conditions Are In Place For Market Crash In 2025

Darius recently joined David Lin to discuss the impact of tariffs, the outlook for inflation, the role of gold in our KISS Model Portfolio, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. How Are Tariffs Likely To Impact Asset Markets In 2025?

We believe China is likely to respond to tariffs by significantly devaluing the yuan, which carries profound implications for global asset markets. Historically, when China devalues the yuan, other major economies follow suit with sympathy devaluations to maintain competitiveness. During the 2018-2019 trade war, this dynamic led to broad-based declines in the euro, Japanese yen, British pound, and Swiss franc—on top of the yuan’s depreciation—resulting in a materially stronger U.S. dollar.

If a similar pattern emerges in 2025, we could see a sharp appreciation of the U.S. dollar in the second half of the year, potentially reinforced by a less hawkish Federal Reserve. This would likely lead to higher interest rates, rising bond market volatility, elevated currency market volatility, and a stronger U.S. dollar – all of which are headwinds for global liquidity.

Given the historic scale of global refinancing needs in 2025, we believe any liquidity contraction is likely to trigger a severe market correction – and potentially even a full-scale crash.

2. What Is The Outlook For Inflation?

According to our GRID Model projections for Headline CPI and the econometric study of all the postwar economic cycles in and around recession we conducted, we believe US inflation is unlikely to return durably to trend in the absence of a recession, which implies the highest probability outcome is inflation firming over the medium term against easing base effects.

Leading indicators of inflation also support our hawkish NTM inflation outlook. Core PPI, a reliable leading indicator for inflation in this business cycle, began breaking down approximately 18 months before Core CPI and Core PCE. Core PPI bottomed in December 2023 and has been trending higher since.

Moreover, Core CPI and Core PCE deflator appear to be stabilizing at an above-trend level. These metrics may accelerate in 2025 before resuming the longer-term downtrend, and the key risk is that consensus expects inflation to keep falling, and a rebound in inflation—however modest—could force markets to price out additional Fed rate cuts for 2025 and 2026.

3. Why Did We Replace Core Fixed-Income Exposure with Gold in Our KISS Model Portfolio?

We incorporate gold into the portfolio to enhance diversification by reducing overall beta and introducing non-correlated asset classes, which helps mitigate drawdowns and volatility while also providing exposure to Fourth Turning monetary policy dynamics. Gold serves as a low-beta asset, with a trailing six-month beta of approximately 0.3 to the S&P 500.

Moreover, the addition of gold to KISS reflects our understanding that if our Investing During A Fourth Turning Regime analysis proves true over the long term and the Fed is forced to accelerate financial repression and monetary debasement, it is highly unlikely that bonds will outperform other assets on a real, risk-adjusted basis.

We expect monetary debasement and financial repression to be tools that the Fed employs to address the challenges of excessive sovereign debt and a robust economy that leaves little incentive for buyers of government bonds, and we believe gold will prove to be a far better hedge against accelerated monetary debasement and financial repression than bonds.

Since our bullish pivot in November 2023, the QQQs have surged 44% and Bitcoin is up +201%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

What Are The Key Risks To Asset Markets In 2025?

Darius recently joined Maggie Lake to break down the key risks to asset markets in 2025, the outlook for inflation, investor positioning insights from the 42 Macro Positioning Model, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. What Are The Key Risks To Asset Markets In 2025?

We believe 2025 will be a year in which the distribution of probable economic outcomes is both wide and widening. This is largely driven by an anticipated series of significant changes to fiscal and regulatory policy.

Specifically, factors such as tariffs, securing the border, and a hawkish shift in Treasury net financing (i.e., less bills + more coupons) are likely to contribute negative supply shocks to the economy and asset markets. At the same time, tax cuts, deregulation, and accelerated energy production could generate positive supply-side shocks.

Investors should closely monitor the size, sequence, and scope of these policy changes, as they will have a significant impact on asset markets throughout 2025. If enough of the left-tail risk economic scenarios materialize, we believe it is likely to lead to a crash in risk assets.

2. What Is The Outlook For Inflation?

At 42 Macro, we conducted an econometric study of all the postwar economic cycles in and around recession. That process consisted of normalizing the policy, profits, liquidity, growth, stocks, employment, credit, and inflation cycles, and comparing current trends to historical patterns late in the business cycle, leading into, and through a recession.

In that study, we found that inflation is the most lagging indicator of the business cycle, as it usually breaks down below trend 12 to 15 months after a recession starts.

According to our GRID Model projections for Headline CPI and the deep dive study referenced above, US inflation is unlikely to return durably to trend in the absence of a recession, which implies the highest probability outcome is inflation firming over the medium term against easing base effects. Per our GRID Model, late-Q2/early-Q3 is when inflation is likely to accelerate appreciably enough to cause serious problems in asset markets.

3. What Does The 42 Macro Positioning Model Reveal About Current Risks To Asset Markets?

Our 42 Macro Positioning Model analyzes 15 long-term time series, comparing their current levels to the median values observed at major bull market peaks and troughs.

Currently, many of the time series we track are breaching levels that have consistently been observed at major bull market peaks:

AAII stock allocation exceeds the median value observed at major bull market peaks in the nine market cycles since Jan-98.
AAII bond allocation is nearing the low level typically observed at major bull market peaks.
AAII cash allocation is below the median value observed at major bull market peaks.
S&P 500 realized volatility—an inverse proxy for systematic fund exposure—is nearing the level seen at prior bull market peaks.
S&P 500 implied volatility correlations—an inverse proxy for market-neutral hedge fund exposure—is below the median value seen at prior bull market peaks.
S&P 500 price/NTM EPS ratio sits in the 92nd percentile of all historical data, dating back to the late 1980s, and is well above the median value observed at major bull market peaks.
Investment-grade credit spreads are in the 2nd percentile of all historical data, also dating back to the late 1980s, and are well below the median value observed at major bull market peaks.

These metrics collectively signal a positioning cycle that is highly asymmetric, with participants who are bullish and are heavily betting on positive outcomes across growth, inflation, policy, and liquidity.

As previously stated, if enough of the left-tail risk economic scenarios materialize in succession, combined with the extreme bullish condition we currently observe in the positioning cycle, we believe it is likely to lead to a crash in risk assets.

Since our bullish pivot in November 2023, the QQQs have surged 42% and Bitcoin is up +185%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Here’s Why 2025 Will Be A Tricky Year For Investors

Darius recently joined Cheryl Casone on Fox Business to discuss the current risk-on Market Regime, the medium-term drivers of asset markets, the impact of upcoming fiscal and regulatory policy changes, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

We are currently in a risk-on Market Regime, and we anticipate that risk-on condition may generally persist for the next ~three months due in large part to a likely $700-800bn decline in the Treasury General Account (TGA). In risk-on Market Regimes, investors are typically rewarded for taking on high-beta, cyclical exposures, such as consumer discretionary, technology, financials, and industrials.
As we move further into 2025, the key issue for asset markets is likely to be the significant changes coming from fiscal and regulatory policies. Some of these initiatives should be positive for asset markets, including tax cuts, much more M&A, and DOGE, while others, such as tariffs, a too-strong USD, and stagflation lowering the strike price of the “Fed put,” may have negative implications. For investors, the challenge is to understand the size, sequence, and scope of these policy changes. Ultimately, navigating the sequence of policy changes effectively will determine whether you make or lose money as an investor over the medium term.
Earlier this month, Fed Chairman Jerome Powell’s press conference marked the end of the Fed’s asymmetrically dovish reaction function, which they had effectively maintained from November 2023 through December 18, 2024. This reaction function supported the buoyant asset market performance throughout the year that we have persistently called for. However, the Fed’s approach to monetary policy moving forward will likely be more balanced, with a nuanced view of labor market and inflation risks. This shift places the responsibility back to us as investors to accurately forecast where the labor market and inflation are headed, as these will ultimately determine policy decisions.

Since our bullish pivot in November 2023, the QQQs have surged 43% and Bitcoin is up +169%.

If you have fallen victim to bear porn and missed part—or all—of this rally, it is time to explore how our KISS Model Portfolio or Discretionary Risk Management Overlay aka “Dr. Mo” will keep your portfolio on the right side of market risk going forward.Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Why Crypto Is An Important Asset Class For Millennials

Darius recently joined Charles Payne on Fox Business to discuss the impact of last week’s FOMC decision and Chair Powell’s press conference, the outlook for liquidity, how to invest successfully during this Fourth Turning, and more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

While the Fed’s reaction function remains dovish, we believe it is likely no longer asymmetric. With the Fed now adopting a more balanced assessment of risks, the responsibility shifts back to us as investors to accurately forecast where the labor market and inflation are headed, as these will ultimately determine policy decisions.
The outlook for US liquidity remains positive. As long as the Democrats do not extend or eliminate the debt ceiling during Biden’s administration – and it appears they will not – the Treasury General Account balance is likely to be spent down to zero within the first four to five months of 2025. This development would be bullish for asset markets.
The current Fourth Turning is defined by factors such as excessive fiscal policy, monetary debasement, and financial repression. This macroeconomic backdrop is structurally bullish for stocks, credit, cryptocurrencies, and commodities. It is structurally bearish for Treasury bonds and the U.S. dollar. We believe the crypto asset class holds significant importance for Millennials because they recognize that the current system is not working in their favor, and investing in crypto is a “calculated gamble” on an alternative future in which the gap between the haves and have-nots is much narrower.

Since our bullish pivot in November 2023, the QQQs have surged 42% and Bitcoin is up +167%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just high-quality insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Will Gold Protect Your Wealth Better Than Bonds Over The Long Term?

Darius recently joined Gavekal’s David Hay to discuss the current Fourth Turning, #inflation, the relative attractiveness of Treasury Bonds and Gold, and much more.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. How Can Understanding Fourth Turning Economic And Policy Dynamics Help Investors Position Their Portfolios?

At 42 Macro, we conducted a deep-dive empirical study on Fourth Turnings to identify trends across economic, market, and policy indicators during these transformative periods.

Our research revealed that Fourth Turnings are consistently marked by explosive growth in sovereign deficits, rising debt levels, expanding government size, and soaring costs of financing deficits. These periods also see a sharp deterioration in sovereign fiscal balances—a trend already unfolding in the current Fourth Turning.

As investors, understanding how these indicators are likely to behave during Fourth Turnings is essential to properly positioning your portfolio and staying on the right side of market risk.

2. How Does Inflation Typically Behave In Fourth Turnings?

Our analysis of Fourth Turnings reveals that Democrats have historically emphasized government social benefits to supplement household incomes, while Republicans have prioritized lowering corporate tax rates. These opposing approaches have converged to fuel the accumulation of significant public debt.

We foresee the Federal Reserve is likely to be drawn into the equation, effectively forced to monetize rising public sector debt and deficits.

We believe the explosive growth of public sector debt plus the Fed’s likely choice to monetize a considerable portion of that debt is likely to catalyze sustainably above-trend rates of inflation, aligning with our research that indicates inflation tends to accelerate sharply during Fourth Turnings.

3. How Can Investors Best Protect Their Wealth Against Explosive Growth In Sovereign Debt And Sustainably Above-Trend Inflation?

Our KISS Model Portfolio is our systematic trend-following strategy designed for retail investors, with a core allocation of 60% Stocks, 30% Gold, and 10% Bitcoin.

Recently, we pivoted from Treasury Bonds to Gold, which we believe is a better choice for investors in the context of the current Fourth Turning. Gold has consistently performed well across various Market Regimes, serving as a reliable hedge against inflation and economic uncertainty—particularly during Fourth Turnings, when sovereign debt and inflation tend to surge.

Since our bullish pivot in November 2023, the QQQs have surged 40% and Bitcoin is up +174%.

If you have fallen victim to bear porn and missed part—or all—of this rally, it’s time to explore how our KISS Model Portfolio or Discretionary Risk Management Overlay aka “Dr. Mo” will keep your portfolio on the right side of market risk going forward.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just macro insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Will Risk Assets Power Ahead Into And Through Year End?

Darius recently joined Paul Barron on the Paul Barron Network, where they discussed 42 Macro’s three bullish fundamental themes, the key economic cycles that lead asset markets, and more.

If you missed the interview, here are the two most important takeaways from the conversation that have significant implications for your portfolio:

1. When Should Investors Brace For A Significant Market Downturn?

We remain confident in the fundamental bull base for asset markets through early-Q2.

Our outlook is supported by three of our four core fundamental themes:

Our “Resilient U.S. Economy” theme, which we authored in September 2022.
Our “Here Comes The Liquidity” theme, which we introduced in September 2024.
Our “Jay Wants A Soft Landing” theme, which expresses our view that the Fed has an asymmetrically dovish reaction function that is geared towards engineering a soft landing in the US economy.

Combined, these three themes suggest increased liquidity, upside surprises in growth, and an accommodating Federal Reserve – all factors that indicate a favorable environment for risk assets over the medium term.

However, looking beyond Q2 2025, we anticipate asset markets are likely to face downside risks, such as a global refinancing air pocket. TBD on that.

2. What Implications Do Sidelined Cash And Growing Credit Stress Among Retail Consumers Have For Asset Markets?

Our empirical research shows that credit delinquencies and “cash on the sidelines” have limited significance in the current market context because they are lagging indicators. Historically, these factors shift after broader asset markets and the overall economy have moved.

In contrast, our deep-dive empirical study of business cycle dynamics has identified four key cycles that consistently lead asset markets:

Policy
Liquidity
Growth
Corporate Profits

These cycles are the primary drivers behind significant swings in asset markets. While real-time data on these factors is not always available, developing an informed perspective on their trajectories enables a more credible and forward-looking approach to anticipating market movements.

Since our bullish pivot in November 2023, the QQQs have surged 39%. Momentum $MTUM is up +51% and Bitcoin is up +184%.

Thousands of investors around the world confidently make smarter investment decisions using our clear, accurate, and affordable signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass.

No catch, just macro insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.

Will AI Replace Humans In Investing?

Darius recently hosted QuAIL Technologies CEO Andrew Fischer on this month’s 42 Macro Pro to Pro, where they took a deep dive into AI’s future impact on the financial services industry.

If you missed the interview, here are the three most important takeaways from the conversation that have significant implications for your portfolio:

1. Will AI Replace Investment Professionals?

While many financial services professionals fear this, Andrew believes AI will not replace them. Instead, it will become a powerful tool every investor uses in some form.

Common applications of AI include accelerating workflows and increasing productivity by enhancing systems like report generation and client-stakeholder communication. AI’s ability to analyze vast amounts of data gives humans a competitive edge.

AI will not replace people; rather, people using AI will replace those that do not.

2. How Will AI Impact Investors’ Lives?

Andrew Fischer shared a compelling example from QuAIL Technologies, where AI is used daily to help investors manage the overwhelming volume of information they encounter.

Each morning, QuAIL’s AI agents analyze around 5,000 articles—well before they have had their first cup of coffee.

Humans can not realistically process that many articles in such a short time nor retain or act on the insights while they are still relevant. But with AI, investment professionals can quickly access refined, relevant insights from thousands of sources. This means that by the start of their day, they already understand the latest fundamental and technical developments and their potential impact on their portfolios, giving them a strategic edge over other market participants.

3. How Can AI Enhance Repeatable Investment Processes?

One area where AI shows significant promise is in assisting the process of identifying Market Regimes. Andrew has explored concepts like geometric fractals and statistical self-similarity – research that suggests that the factors defining each regime can change over time. By incorporating AI, investors can track these shifts in explanatory variables, continuously adjusting the models used to capture these evolving patterns.

AI also helps investors ensure they are focused on the most predictive factors for identifying market regimes. With AI, a system can iterate and refine its understanding of market dynamics.

Since alpha naturally decays over time, this continuous improvement and stress-testing of models is essential. AI can play a transformative role in streamlining such procedures, thus preserving and enhancing our and every investor’s investment approach.

Since our bullish pivot in November 2023, the QQQ has surged nearly 30%.

If you have fallen victim to bear porn and missed part—or all—of this rally, it’s time to explore our KISS Model Portfolio or Discretionary Risk Management Overlay aka “Dr. Mo” signals that have a proven track record of keeping your portfolio on the right side of market risk.

Thousands of investors around the world confidently make smarter investment decisions using our clear, actionable, and accurate signals—and as a result, they make more money.

If you are ready to learn more about how our clients incorporate macro into their investment process and how you can do the same, we invite you to watch our complimentary 3-part macro masterclass. No catch, just macro insights to help you grow your portfolio—our way of saying thanks for being part of our global #Team42 community of thoughtful investors.