Insider trading is the term used to describe the illegal act in which someone relies on market-moving, nonpublic information to decide whether to buy or sell a financial asset.
For example, say you work as an executive at a company that plans to make an acquisition. If it’s not public, that would count as inside information. It becomes a crime if you either tell a friend about it – and that person then buys or sells a financial asset using that information – or if you make a trade yourself.
While insider trading typically involves trading stocks of individual companies based on information about them, it can involve any kind of information about the economy, a commodity or anything else that moves markets.
Insider trading was dramatized in Oliver Stone’s 1987 classic movie “Wall Street.” Here, ruthless financier Gordon Gekko explains why information is so valuable.
Why insider trading matters
Insider trading is not a victimless crime. People trading on inside information benefit at the expense of others.
A key characteristic of well-functioning financial markets is high liquidity, which means it is easy to make large trades at low transaction costs. But when traders fear losing money to counterparts with inside information, they charge higher transaction costs, which leads to less liquidity and lower investor returns. And since a lot of people have a stake in financial markets – about half of U.S. families own stocks either directly or indirectly – this behavior hurts most Americans.
Insider trading also makes it more expensive for companies to issue stocks and bonds. If investors think that insiders might be trading bonds of a company, they will demand a higher return on the bonds to compensate for their disadvantage – increasing the cost to the company. As a result, the company has less money to hire more workers or invest in a new factory.
There are also broader impacts of insider trading. It undermines public confidence in financial markets and feeds the common view that the odds are stacked in favor of the elite and against everyone else.
Furthermore, since inside traders profit from privileged access to information rather than work, this makes people believe that the system is rigged.
A recent study estimated that overall only about 15% of insider trading in the U.S. is detected and prosecuted but suggested more of it is coming to light in recent years because of increased enforcement.
One of the more famous – and few – examples of insider trading being prosecuted was the 2004 conviction of businesswoman and media personality Martha Stewart for selling shares based on an illegal tip from a broker.
The sudden collapse of several banks in 2023 has also caught the attention of authorities. The Securities and Exchange Commission is reportedly investigating executives at both Silicon Valley Bank and First Republic Bank, which was seized and sold on May 1, for potential insider trading.
And, so, the cat-and-mouse game between regulators and those who want to game the system continues.
At the close of the stock market on Friday, the Dow Jones Index (US30) increased by 1.65% (-1.30% for the week), and the S&P 500 Index (US500) was up by 1.85% (-0.73% for the week). Technology Index NASDAQ (US100) gained 2.25% on Friday (+0.21% for the week). Investor fears that the economy is headed for a recession in the second half of the year bolstered bets that interest rates will soon decline.
Friday’s data showed that the US economy added 253,000 jobs (forecast +181,000). The unemployment rate fell from 3.5% to 3.4%. The unexpected rise in US hiring and payrolls last month makes it more likely that the Federal Reserve will hold interest rates high longer and possibly keep the possibility of an 11th straight hike in June.
St. Louis Federal Reserve President James Bullard said Friday that he is willing to be “open-minded” about whether to raise rates or leave them unchanged at the Fed’s June meeting, joining the “data-dependent” position. Bullard said he thinks the 5% to 5.25% rate level reached this week is still at the “lower end” of what might be needed; his own projections suggest that rates may need to rise another half a point for inflation to decline steadily. The US inflation data in the coming week will give an indication of whether the Federal Reserve can halt its series of interest rate hikes at next month’s meeting.
Deposits at US commercial banks fell to their lowest level in nearly two years by the end of April, data released Friday by the Federal Reserve showed. Total lending by banks rose, driven by record levels of outstanding loans and leases.
Equity markets in Europe were mostly up on Friday. German DAX (DE30) gained 1.44% (+0.48% for the week), French CAC 40 (FR40) added 1.26% on Friday (-0.88% for the week), Spanish IBEX 35 (ES35) increased by 1.11% (-2.06% for the week), British FTSE 100 (UK100) was up 0.98% (-0.68% for the week).
The European Central Bank will continue to raise interest rates until inflation is under control, two ECB officials said Friday. French central bank governor François Villrois de Galleau and his Lithuanian counterpart Gediminas Simkus confirmed the ECB’s intention to raise borrowing costs even further. Data on Friday also showed that Eurozone retail sales fell more than expected in March, signaling a cooling of demand.
Saudi Arabia’s economy grew by 3.9% in the first quarter thanks to non-oil activity. The IMF reports that the Saudi economy grew by 8.7% last year but forecasts that Saudi GDP growth will increase by 3.1% this year.
Gold fell back from record highs amid signs that the Fed may raise rates again in June. Gold has an inverse correlation to government bond yields, which depend on the dollar index. A rise in interest rates causes the dollar and government bond yields to rise, which is negative for gold and silver. But the medium-term outlook for gold for the rest of the year remains bullish, as the US Federal Reserve is in the final phase of its tightening cycle.
Asian markets have gained substantially over the past week. Japan’s Nikkei 225 (JP225) gained 2.39%, China’s FTSE China A50 (CHA50) added 0.37%, Hong Kong’s Hang Seng (HK50) increased by 0.50%, India’s NIFTY 50 (IND50) jumped by 0.96%, and Australia’s S&P/ASX 200 (AU200) was up by 0.37%.
On Friday, the Monetary Authority of Singapore (MAS) imposed additional capital requirements on DBS Bank, the banking arm of the country’s largest lender, DBS Group, after disruptions to its banking services in recent months.
The Australian government intends to lower its inflation forecasts and also forecasts a longer unemployment decline in the 2023/24 budget, which should lead to a much-needed rise in real wages. Unemployment is forecast at 3.5% at the end of the second quarter.
In the commodities market, futures on cotton (+4.03%), wheat (+3.94%), silver (+2.79%), and corn (+2.09%) showed the biggest gains last week. Futures on natural gas (-12.32%), WTI oil (-7.11%), Brent oil (-6.17%), and lumber (-2.15%) showed the largest drop.
S&P 500 (F) (US500) 4,136.25 +75.03 (+1.85%)
Dow Jones (US30)33,674.38 +546.64 (+1.65%)
DAX (DE40) 15,961.02 +226.78 (+1.44%)
FTSE 100 (UK100) 7,778.38 +75.74 (+0.98%)
USD Index 101.28 -0.12 -0.12%
Important events for today:
– Japan Monetary Policy Meeting Minutes at 02:50 (GMT+3);
– Japan Services PMI (m/m) at 03:30 (GMT+3);
– German Industrial Production (m/m) at 09:00 (GMT+3).
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
The GBPUSD hijacked our attention this morning after hitting a fresh 2023 high.
Sterling has become the best performing G10 currency year-to-date, gaining roughly 4.7% against the dollar thanks to fundamental and technical forces.
On the fundamental side, pound bulls remain supported by encouraging UK economic data, BoE rate hike expectations and a weaker dollar. Taking a glance at the technicals, prices are firmly bullish on the weekly timeframe with the next major resistance levels around the 100 and 200-week Simple Moving Averages.
This could be a volatile week for the GBPUSD and here are 4 reasons why…
BoE Super Thursday
The Bank of England (BoE) monetary policy decision will be on Thursday 11th May.
This will be accompanied by the minutes of the meeting and the quarterly Monetary Policy Report (MPR), making it a Super Thursday combo.
Markets widely expect the BoE to raise interest rates by 25 basis points, taking the key rate to 4.5%. Given how UK inflation remains in double digits at 10.1% and strong wage growth, this is unlikely to be the last rate hike from the BoE. Investors will be paying very close attention to the minutes, quarterly MPR and BoE Governor Andrew Bailey’s press conference for fresh clues on the central bank’s next move.
If the BoE strikes a hawkish note and signals further rate hikes in the face of stubborn inflation, this could boost the GBPUSD higher
A cautious sounding BoE that hints at potentially pausing rate hikes could send the Pound tumbling.
US April CPI report
Before the BoE rate decision, much attention will be directed towards the April US consumer price index (CPI) report published on Wednesday. After last Friday’s robust NFP report that saw the US economy create 253,000 jobs in April, investors will be paying extra attention to the inflation data. CPI year-on-year is expected to rise 5.0% which would be the slowest pace in almost 2 years while Core CPI is forecast to cool 5.5% from the 5.6% in the prior month.
Should the report point to further evidence of inflation slowing down, this could reinforce expectations around the Fed pausing rates – ultimately lifting the GBPUSD as the dollar weakens.
If the CPI figures remain sticky, this could compound to last Friday’s strong US jobs report and boost bets around the Fed leaving interest rates higher for longer. Should this boost the dollar, it may drag the GBPUSD lower.
Top-tier UK economic data
On Friday, it will be wise to keep a close eye on the UK Q1 GDP print and latest industrial production figures which could offer additional insight into the health of the UK economy. Growth is expected to stagnate in the first quarter of 2023, expanding 0.2% year-on-year compared to the 0.6% witnessed in the previous quarter. Ultimately, a strong set of figures may boost sentiment towards the UK economy while disappointing numbers are seen fuelling fears over the growth outlook.
GBPUSD confirmed breakout
After securing a solid daily close above the 1.2580 resistance level, this could signal further upside for the GBPUSD. There have been consistently higher highs and higher lows while prices are trading firmly above the 50,100 and 200-day Simple Moving Average. The bullish momentum could pave a path towards 1.2730 and 1.2870, respectively. If prices sink back under 1.2580, bears may target 1.2530 and 1.2380, respectively.
Artificial Intelligence (AI) stocks should now be part of most investors’ portfolios as Big Tech prepare for an AI boom, suggests the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The comments from deVere Group’s Nigel Green follow last week’s earnings reports from tech titans including Microsoft, Alphabet (parent company of Google) Meta (parent company of Facebook, Instagram and Whatsapp) and Amazon.
It also comes after legendary investors Warren Buffett and Charlie Munger, the Chairman and CEO and Vice chairman respectively of Berkshire Hathaway, spent hours this weekend at a shareholders’ meeting in which they expressed skepticism about AI.
“I am personally skeptical of some of the hype that is going into artificial intelligence. I think old-fashioned intelligence works pretty well,” Munger noted.
However, Nigel Green says: “Despite Buffett and Munger’s scepticism, Big Tech last week posted robust financial performance reports for first-quarter earnings. The pace of growth has picked up noticeably.
“But the real story was the tech giants’ seemingly relentless mania for AI. Most of corporate America clearly think that this is the future.
“The importance of this cannot be overstated considering that just five tech companies have made up two-thirds of the S&P 500’s gains so far this year.
“Besides guidance, which suggests how companies are positioned to manage an economic downturn, and data on how effective cost-cutting measures have been, the Big Tech earnings season was dominated by AI detail.
“The tech titans are fully aware of the enormous returns that could be secured when AI starts to radically change the way businesses work and consumers live their lives.
“We fully expect that the volume of chat around AI will ramp up in future earnings seasons.”
His belief is backed up by recent events. The AI chatbot ChatGPT became wildly popular in just a matter of weeks – and took off faster than social media platforms like TikTok or Instagram. Only two months after its launch in late November, it had 100 million monthly active users in January, according to reports.
It is because of the potential way that AI is expected to impact society and global business that Nigel Green now says that “AI stocks should have a place in most investors’ portfolios.”
Including AI exposure into an investment portfolio offers several possible benefits for investors, such as “potential strong returns, risk management, diversification possibilities, and future-proofing advantages because as the use of AI continues to grow and become more pervasive, those companies that fail to adopt this tech may be at a competitive disadvantage.”
The deVere CEO concludes: “We expect that companies that have substantial AI interests are likely to benefit from the growth of the industry and this could have potentially significant rewards for early investors.
“But, of course, like any investment strategy, including AI in a portfolio carries risks and requires careful consideration. Investors should seek professional advice before making any investment decisions.
“We believe that AI is the future, and we know from the past that early investors in innovative technologies often reap enormous rewards.”
About:
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
Mindfulness and self-compassion are now buzzwords for self-improvement. But in fact, a growing body of research shows these practices can lead to real mental health benefits. This research – ongoing, voluminous and worldwide – clearly shows how and why these two practices work.
One effective way to cultivate mindfulness and self-compassion is through meditation.
For more than 20 years, as a clinical psychologist, research scientist and educator, I taught meditation to students and clinical patients and took a deep dive into the research literature. My recent book, “The Self-Talk Workout: Six Science-Backed Strategies to Dissolve Self-Criticism and Transform the Voice in Your Head,” highlights much of that research.
Could mindfulness meditation be the next public health revolution?
Be patient when starting a meditation practice
I didn’t like meditation – the specific practice sessions that train mindfulness and self-compassion – the first time I tried it as a college student in the late ‘90s. I felt like a failure when my mind wandered, and I interpreted that as a sign that I couldn’t do it.
In both my own and others’ meditation practices, I’ve noticed that the beginning is often rocky and full of doubt, resistance and distraction.
But what seem like impediments can actually enhance meditation practice, because the mental work of handling them builds strength.
For the first six months I meditated, my body and mind were restless. I wanted to get up and do other tasks. But I didn’t. Eventually it became easier to notice my urges and thoughts without acting upon them. I didn’t get as upset with myself.
After about a year of consistent meditation, my mind seemed more organized and controllable; it no longer got stuck in self-critical loops. I felt a sense of kindness or friendliness toward myself in everyday moments, as well as during joyful or difficult experiences. I enjoyed ordinary activities more, such as walking or cleaning.
It took a while to understand that anytime you sit down and try to meditate, that’s meditation. It is a mental process, rather than a destination.
How meditation works on the mind
Just having a general intention to be more mindful or self-compassionate is unlikely to work.
Don’t be discouraged if your mind wanders as you meditate.
Establishing the formal practice
A common misconception about mindfulness is that it’s simply a way to relax or clear the mind. Rather, it means intentionally paying attention to your experiences in a nonjudgmental way.
Consider meditation the formal part of your practice – that is, setting aside a time to work on specific mindfulness and self-compassion techniques.
Cultivating mindfulness with meditation often involves focusing on paying attention to the breath. A common way to start practice is to sit in a comfortable place and bring attention to your breathing, wherever you feel it most strongly.
At some point, probably after a breath or two, your mind will wander to another thought or feeling. As soon as you notice that, you can bring your attention back to the breath and try not to judge yourself for losing focus for five to 10 minutes.
When I was just getting started meditating, I would have to redirect my attention dozens or hundreds of times in a 20-to-30-minute session. Counting 10 breaths, and then another 10, and so on, helped me link my mind to the task of paying attention to my breathing.
The most well-established technique for cultivating self-compassion is called loving-kindness meditation. To practice, you can find a comfortable position, and for at least five minutes, internally repeat phrases such as, “May I be safe. May I be happy. May I be healthy. May I live with ease.”
When your attention wanders, you can bring it back with as little self-judgment as possible and continue repeating the phrases. Then, if you like, offer the same well wishes to other people or to all beings.
Every time you return your focus to your practice without judging, you’re flexing your mental awareness, because you noticed your mind wandered. You also improve your capacity to shift attention, a valuable anti-rumination skill, and your nonjudgment, an antidote to self-criticism.
Mindfulness also occurs when you tune into present-moment sensations, such as tasting your food or washing the dishes.
An ongoing routine of formal and informal practice can transform your thinking. And again, doing it once in a while won’t help as much. It’s like situps: A single situp isn’t likely to strengthen your abdominal muscles, but doing several sets each day will.
When thoughts pop up during meditation, no worries. Just start again … and again … and again.
One final point: Beginning meditators may find that self-criticism gets worse before it gets better.
After years or decades of habitual self-judgment, people often judge themselves harshly about losing focus during meditation. But once students get through the first few weeks of practice, the self-judgment begins to abate, both about meditation and about oneself in general.
As one of my students recently said after several weeks of mindfulness meditation: “I am more stable, more able to detach from unhelpful thoughts and can do all of this while being a little more compassionate and loving toward myself.”
By Friday, the BTC has risen to 29,208 USD. The weekly growth of the leading cryptocurrency is modest, of just 0.77%.
Overall, the technical picture looks to be to the bulls’ benefit if we do not focus too much on the correlation with the US stock market. To skyrocket, the buyers need to test 31,000 USD and secure above this level. They have more force and reasons to do so than necessary. If they succeed, the new and already known target will be in the range between 34,000 and 35,000 USD.
The capitalisation of the crypto sector has risen to 1.197 trillion USD. The part occupied by the BTC has extended to 47.3%, while the share of the ETH remains at 19.1%.
Salvador has raised 1 BTC for charity
A non-profit charity programme from Salvador called Mi Primer Bitcoin has collected 1 BTC in donations. The money will be allocated for education. The BTC was accepted as a legal payment means in Salvador in 2021.
The activity of DOGE addresses increased
The activity of DOGE addresses increased noticeably this week. On 1 May, there were 17.8 thousand transactions registered in the blockchain, while this number increased to 23.7 thousand by 4 May. Current network activity is assessed as high since mid-April 2023.
WOO token grew significantly
The WOO increased 11.6% overnight, while the daily trade volume in the coin amounted to 50.18 million USD. The RNDR also looked good, having risen by 8.3%. Number three in terms of daily growth is the CFX (+7.5%).
Attention! Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.
Even as anticipation mounts ahead of the US jobs data due later today, investors may be bracing for more volatility in the week ahead thanks to another round of risk events.
All eyes will be on the incoming US inflation data as well as speeches from financial heavyweights and other risk events which could spark some fresh action across markets.
Monday, May 8
UK bank holiday honouring Charles III coronation
EUR: Germany industrial production, ECB Chief Economist Philip Lane speech
Tuesday, May 9
CHN: China trade, money supply
AUD: Australia consumer confidence
EUR: ECB Chief Economic Philip Lane speech (IMF)
USD: Fed New York President John Williams speech
US President Joe Biden debt ceiling talks
Wednesday, May 10
EUR: Germany April CPI (final)
USD: US April CPI
Thursday, May 11
CNH: China PPI, CPI
GBP: UK BOE rate decision & press conference
USD: US PPI, initial jobless claims
G7 finance ministers meet in Japan
Friday, May 12
GBP: UK Industrial production, Bank of England Chief Economist Huw Pill speech
USD: University of Michigan consumer sentiment, Fed speeches
The April US consumer price index (CPI) report published on Wednesday 10th May will be exactly one week after the Federal Reserve raised rates and signalled a pause in further increases.
Given how Fed Chair Jerome Powell has left the door open to further tightening if incoming economic data warrants, this could add more spice to the report.
Markets are forecasting:
CPI year-on-year (April 2023 vs. April 2022) to rise 5.0% – slowest pace in almost 2 years.
Core CPI year-on-year to cool 5.4% from the 5.6% in the prior month.
CPI month-on-month (April 2023 vs March 2023) to rise 0.4% from 0.1% in the prior month.
Core CPI month-on-month to cool 0.3% from the 0.4% in the prior month.
Ultimately, further evidence of inflation slowing down could reinforce expectations around the Federal Reserve pausing and eventually cutting interest rates. Should inflation remain sticky, this could rekindle bets around the Fed leaving interest rates higher for longer.
Expectations are rising over the Federal Reserve cutting interest rates with the chance of a 25-basis point cut in July currently priced at 53%, according to Fed funds futures! It will be interesting to see how the incoming inflation data shapes market expectations around the central bank’s next move.
With all of the above discussed, here’s how these 3 assets could react to the US CPI report
USD Index
The past few months have been rough and rocky for the dollar as investors weighed the prospects of the Federal Reserve pausing and then eventually cutting interest rates. More pain could be in store for the dollar if US inflation cools more than expected in April.
A soft inflation print may drag the USD Index toward the 100.72 level. Should prices experience a bearish breakout, this could open the doors toward 100.
A sticky inflation print could throw a lifeline to dollar bulls, propelling back above 101.50 with 102.34 acting as a key level of interest.
SPX500_m
After being trapped within a range for the past few weeks, could a breakout be on the horizon for the SPX500_m?
If the inflation numbers beat expectations, this may trigger a bearish breakout on the SPX500_m – taking prices below the 4050-support level.
Should the inflation numbers come in lower than market forecasts, SPX500_m bulls could be injected with renewed confidence as expectations intensify over the Fed ending its rate cycle. This could send the index back toward the 4180 resistance level and beyond.
Gold
It may be wise to fasten your seatbelts for potential volatility on gold due to its high sensitivity to inflation data and US interest rate expectations. The precious metal remains bullish on the daily charts despite prices pulling back from near-record highs.
A soft inflation report could sweeten appetite for the zero-yielding asset as bets rise over the Fed cutting rates in 2023. This development could push the metal back towards the 2023 high of $2063 with bulls eyeing $2070 and the all-time high at $2075.
A stronger-than-expected inflation number could drag gold prices back toward the psychological $2000 level.
The US stock indices fell again Tuesday as the banking crisis continues. The KBW regional banking index fell more than 6% to its lowest level since November 2020. The Dow Jones Index (US30) was down by 1.08%, and the S&P 500 Index (US500) fell by 1.16% at the stock market’s close. The NASDAQ Technology Index (US100) decreased by 1.08% yesterday.
Regional banks fell sharply yesterday as fears of further stress on small lenders persist amid fears that higher interest rates will hurt banks open to long-term assets, including Treasuries and commercial loans.
The US Bureau of Labor Statistics (BLS) showed yesterday that the number of job openings in March fell to 9.590 million, below estimates of 9.775 million, according to the JOLTs report. At the same time, the US Commerce Department reported that manufacturing orders rose by 0.09% from the previous month, exceeding estimates.
Concerns about the economy were exacerbated by new fears that the US could default as early as June 1 if Congress does not raise the debt ceiling. Treasury Secretary Janet Yellen warned Monday that the United States could run out of cash and default on its debt as early as June 1.
Uber (UBER) jumped by 11% after reporting lower-than-expected first-quarter losses and optimistic forecasts.
Equity markets in Europe traded flat on Tuesday. German DAX (DE30) decreased by 1.23%, French CAC 40 (FR40) fell by 1.45% yesterday, Spanish IBEX 35 (ES35) lost 1.72%, British FTSE 100 (UK100) closed on Tuesday down by 1.24%.
The overall inflation rate in the Eurozone rose in April, remaining well above the European Central Bank’s target levels, but the rise in core prices slowed down. The annualized consumer price index rose from 6.9% to 7.0%. Core inflation (which excludes food and energy prices) fell from 5.7% to 5.6%. Instead of providing some clarity as to how much the central bank might raise rates, the latest numbers have only blurred the picture. Market participants are debating whether the ECB will raise rates on Thursday by 50 or 25 basis points. On the one hand, rising overall inflation could prompt hawkish ECB officials to advocate another 0.5% hike. On the other hand, a slowdown in core price growth could shift the balance towards a more dovish stance and lead to a compromise 25 basis point rate hike.
Gold moved back above $2,000 an ounce on Tuesday as talk of a potential US default led investors to look for safe-haven assets. If gold maintains its current upward trend, the spot price could try again to reach an April high of around $2,050 or higher.
Oil fell more than 5% yesterday due to fears of a US default. Now the next step is up to OPEC+. There is a high probability that the cartel will cut its daily production even more. OPEC+ will try by all means to keep oil prices above $80 a barrel.
Asian markets were mostly rising yesterday. Japan’s Nikkei 225 (JP225) gained 0.12%, China’s FTSE China A50 (CHA50) didn’t trade yesterday, Hong Kong’s Hang Seng (HK50) gained 0.20% on the day, India’s NIFTY 50 (IND50) jumped by 0.46%, while Australian S&P/ASX 200 (AU200) showed a negative result of 0.92% decline on Tuesday.
S&P 500 (F) (US500) 4,119.59 −48.28 (−1.16%)
Dow Jones (US30)33,684.53 −367.17 (−1.08%)
DAX (DE40) 15,726.94 −195.44 (−1.23%)
FTSE 100 (UK100) 7,773.03 −97.54 (−1.24%)
USD Index 101.90 −0.25 (−0.25%)
Important events for today:
– New Zealand Unemployment Rate at 01:45 (GMT+3);
– New Zealand RBNZ Gov Orr Speaks at 02:00 (GMT+3);
– Australia Retail Sales (m/m) at 04:30 (GMT+3);
– Eurozone Unemployment Rate (m/m) at 12:00 (GMT+3);
– US ADP Nonfarm Employment Change (m/m) at 15:15 (GMT+3);
This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.
The Federal Reserve raised interest rates again on May 3, 2023, by a quarter point, making it the Fed’s 10th rate hike since March 2022 in an ongoing fight to tame inflation. These rate hikes have been reverberating through the economy, raising prospects of a recession amid heightened concerns about the fragile state of banks.
The rate hikes are also rattling sustainability-focused investing, better known as ESG investing.
The trend toward ESG investing, which puts pressure on companies to meet environmental, social and governance benchmarks, has almost redefined asset management over the past decade. ESG funds today are a multitrillion-dollar market.
However, the high uncertainty around interest rates today, along with the prospects of a looming recession and a political backlash, has put the future of ESG investors at a crossroads.
I specialize in sustainable finance, and my recent work has documented the impact that tough economic times can have on ESG investing demand. Investments into U.S. sustainable mutual funds have visibly slowed since 2022, suffering their worst net flows in five years. Here are how three critical factors can affect investors’ zeal for socially conscious investing going forward.
Interest rate uncertainty
One of the primary arguments that big institutional investors like BlackRock make for ESG investing is that it creates long-term value for shareholders. Companies that pay careful attention to environmental, social and governance issues are believed to be better prepared for distant future risks, including regulatory risks and physical risks from climate change.
However, heightened uncertainty about interest rates poses a challenge today. That’s because higher rates can disproportionately affect the present value that investors assign to long-term investment outcomes. Let me explain.
Within the past year, the Federal Reserve has raised its benchmark lending rate from almost zero to a target range of 5% to 5.25% to combat inflation. In financial markets, higher interest rates lead to higher discount rates. That means that future cash generated by long-term investments is considered to be worth considerably less at today’s higher interest rates.
The more distant an asset’s value lies in the future, the more heavily it will be discounted in value when rates are high. So, long-duration investments – like most ESG investments – are especially sensitive to changes in interest rates.
Another factor that could affect ESG investing is the potential for an economic downturn.
As research shows, investors do not necessarily make ESG investments for greater long-term returns, but often for altruistic reasons or due to personal preferences to hold greener assets. For these ESG investors, a looming recession could change their perspective on these “luxuries.”
In an early warning about this possibility, a recent study I conducted with an economist at the Rotterdam School of Management found that retail investors showed signs of shying away from investing in sustainable mutual funds during the early months of the COVID-19 shock in 2020. This was a period when many households experienced layoffs and furloughs, which likely pushed them to set aside luxuries to prioritize protecting the values of their 401(k)s, IRAs and other investment portfolios.
Prominent economists, such as former Treasury Secretary Larry Summers, have warned of a likely recession as inflation and the Fed’s battle against it persist. The International Monetary Fund also lowered its global economic growth outlook from 3.4% in 2022 to 2.8% in 2023.
Political backlash
Finally, recent political friction and anti-ESG policies across states have started to create headwinds for pension funds and large institutions that serve them.
For example, Florida and Kansas passed laws in recent weeks and several other states including Texas and Kentucky have taken actions to restrict the ability of state public pension funds to invest in companies based on their ESG performance, citing concerns about fraudulent greenwashing and potential fiduciary duty violations, referring to the obligation institutional investors have to seek the highest returns for the lowest risk possible.
These restrictions can severely limit the capacity for ESG investing by institutional investors, which have played a significant role in driving the growth of ESG investing.
While concerns about greenwashing and high fees in ESG investing are not totally unwarranted, these political interventions can also have unintended consequences.
A recent study from economists at Wharton and the Federal Reserve Bank of Chicago found that a Texas law enacted in 2021 prohibiting municipalities from contracting with banks with ESG policies had a distorting side effect on those municipalities’ borrowing costs. The policy ended up raising the cost of public finance, meaning the law ultimately cost taxpayers.
Navigating the crossroads
As companies hold their 2023 annual meetings, the discussions among corporate officials, investors and stakeholders will serve as an important barometer for the current state and future of ESG investing.
Due to high interest rate uncertainty, prospects of a recession and political upheaval, ESG is under pressure. Perceived in recent years as a paradigm shift in how market mechanisms can address harms to society, stakeholders are now scrutinizing ESG investing with a critical lens regarding how strongly it can persist and how much impact it can have.
The next few years will be its most important stress test yet.
The famous first image of a black hole just got two times sharper. A research team used artificial intelligence to dramatically improve upon its first image from 2019, which now shows the black hole at the center of the M87 galaxy as darker and bigger than the first image depicted.
Since then, AI has spread into every field of astronomy. As the technology has become more powerful, AI algorithms have begun helping astronomers tame massive data sets and discover new knowledge about the universe.
Better telescopes, more data
As long as astronomy has been a science, it has involved trying to make sense of the multitude of objects in the night sky. That was relatively simple when the only tools were the naked eye or a simple telescope, and all that could be seen were a few thousand stars and a handful of planets.
A hundred years ago, Edwin Hubble used newly built telescopes to show that the universe is filled with not just stars and clouds of gas, but countless galaxies. As telescopes have continued to improve, the sheer number of celestial objects humans can see and the amount of data astronomers need to sort through have both grown exponentially, too.
For example, the soon-to-be-completed Vera Rubin Observatory in Chile will make images so large that it would take 1,500 high-definition TV screens to view each one in its entirety. Over 10 years it is expected to generate 0.5 exabytes of data – about 50,000 times the amount of information held in all of the books contained within the Library of Congress.
There are 20 telescopes with mirrors larger than 20 feet (6 meters) in diameter. AI algorithms are the only way astronomers could ever hope to work through all of the data available to them today. There are a number of ways AI is proving useful in processing this data.
One of the earliest uses of AI in astronomy was to pick out the multitude of faint galaxies hidden in the background of images. ESA/Webb, NASA & CSA, J. Rigby, CC BY
Picking out patterns
Astronomy often involves looking for needles in a haystack. About 99% of the pixels in an astronomical image contain background radiation, light from other sources or the blackness of space – only 1% have the subtle shapes of faint galaxies.
AI algorithms – in particular, neural networks that use many interconnected nodes and are able to learn to recognize patterns – are perfectly suited for picking out the patterns of galaxies. Astronomers began using neural networks to classify galaxies in the early 2010s. Now the algorithms are so effective that they can classify galaxies with an accuracy of 98%.
This story has been repeated in other areas of astronomy. Astronomers working on SETI, the Search for Extraterrestrial Intelligence, use radio telescopes to look for signals from distant civilizations. Early on, radio astronomers scanned charts by eye to look for anomalies that couldn’t be explained. More recently, researchers harnessed 150,000 personal computers and 1.8 million citizen scientists to look for artificial radio signals. Now, researchers are using AI to sift through reams of data much more quickly and thoroughly than people can. This has allowed SETI efforts to cover more ground while also greatly reducing the number of false positive signals.
AI has proved itself to be excellent at identifying known objects – like galaxies or exoplanets – that astronomers tell it to look for. But it is also quite powerful at finding objects or phenomena that are theorized but have not yet been discovered in the real world.
Teams have used this approach to detect new exoplanets, learn about the ancestral stars that led to the formation and growth of the Milky Way, and predict the signatures of new types of gravitational waves.
To do this, astronomers first use AI to convert theoretical models into observational signatures – including realistic levels of noise. They then use machine learning to sharpen the ability of AI to detect the predicted phenomena.
Finally, radio astronomers have also been using AI algorithms to sift through signals that don’t correspond to known phenomena. Recently a team from South Africa found a unique object that may be a remnant of the explosive merging of two supermassive black holes. If this proves to be true, the data will allow a new test of general relativity – Albert Einstein’s description of space-time.
The team that first imaged a black hole, at left, used AI to generate a sharper version of the image, at right, showing the black hole to be larger than originally thought. Medeiros et al 2023, CC BY-ND
Making predictions and plugging holes
As in many areas of life recently, generative AI and large language models like ChatGPT are also making waves in the astronomy world.
The team that created the first image of a black hole in 2019 used a generative AI to produce its new image. To do so, it first taught an AI how to recognize black holes by feeding it simulations of many kinds of black holes. Then, the team used the AI model it had built to fill in gaps in the massive amount of data collected by the radio telescopes on the black hole M87.
Using this simulated data, the team was able to create a new image that is two times sharper than the original and is fully consistent with the predictions of general relativity.
Astronomers are also turning to AI to help tame the complexity of modern research. A team from the Harvard-Smithsonian Center for Astrophysics created a language model called astroBERT to read and organize 15 million scientific papers on astronomy. Another team, based at NASA, has even proposed using AI to prioritize astronomy projects, a process that astronomers engage in every 10 years.
As AI has progressed, it has become an essential tool for astronomers. As telescopes get better, as data sets get larger and as AIs continue to improve, it is likely that this technology will play a central role in future discoveries about the universe.
Article by 
