Never bet against the United States. That’s the big message for investors from last week. We have had the G7 summit meeting. We had the non-decision on interest rates from the Federal Reserve.
But what stood out was the increase in the share prices of the three big companies in the world of artificial intelligence: Apple, Microsoft and the new member of the three billion club, Nvidia.
There is a simple message here and a more complicated one. The simple message is that investors globally are convinced that generative AI will be the big driver of economic growth for the next decade, perhaps longer.
It is technology dominated by the United States. Apple, which appeared to be lagging behind in incorporating AI into its products and systems, launched its own versions at its annual Worldwide Developers Conference and quickly saw its stock soar, briefly surpassing Microsoft as the most valuable company. Both are worth $3.3bn (£2.6bn), followed by Nvidia at $3.2bn.
You may or may not agree with the Pope, who told G7 leaders on Friday that AI was “fascinating and terrible” at the same time, but it has surely done wonders for its investors’ portfolios.
“Fascinating and terrible”: Given that we are still in the early stages of the AI revolution, the stakes will be much higher in the coming years.
And since we’re still in the early stages of the AI revolution, there will be a lot more to play for in the coming years.
The more complicated message is the relationship between business and government, and how what happens with the global economy and some of the companies that drive it is much more important than politics. You can see a side of that by watching the G7 leaders lining up for a photo. All but the host, Georgia Meloni, are deeply unpopular with their constituents.
It is almost certain that one of them will leave office within three weeks. But it’s not just about popularity; It’s about relative importance.
With the huge exception of the United States, it doesn’t matter much in our daily lives what political leaders do. This can be seen by looking at Labor and Conservative policies here, as the big numbers are broadly similar.
All the talk about borrowing or taxing another £30bn or so needs to be weighed against the size of the economy as a whole.
Take for example Labour’s idea of putting VAT on school fees. It will supposedly raise £1.7bn, although that figure has been disputed. Our GDP last year was £2.687 billion.
Better yet, ask yourself this: What really makes our lives different now from those of 20 years ago? Surely it must be the impact of the iPhone in 2007, and all the services made possible by it, from Instagram and WhatsApp to selfies.
That didn’t happen because some politician thought it would be a great idea and put taxpayer money into its development. It happened because Steve Jobs, the leader of a computer manufacturer, had the genius to see a way to create a better mobile phone.
It still produces more than half of Apple’s revenue and is arguably the most important new product of this century.
Now look ahead. Anyone who wants a comfortable retirement has to save for a pension. For those on a public sector pension, this may be enough, although that is making a judgment on the financial position of governments 30, 40 and more years from now.
For the rest of us it means saving now and building a pension fund. That must be reversed. Where do you put the money or do you have whoever manages it put it? Surely, at least some of it has to happen in the United States, and specifically in large American corporations.
Of course there have been trade catastrophes. Let’s look at Boeing now, or almost the entire banking sector in 2008. More generally, US stocks as a whole are probably overvalued. But time and time again, it’s American companies that come up with some new technology that will take over the world, like it’s doing now.
Share or comment on this article: US stocks are a smart choice, says HAMISH MCRAE
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