Artificial intelligence is already beginning to revolutionize the way certain industries operate. One of those industries is financial market research where analytics company Market Reader is using AI to produce real-time information & insights to explain what is moving the markets and why. The company’s co-founder, Jens Nordvig, joins the ETF Think Tank to explain how his product works and how investors can find it useful to navigate the markets.
While most might assume that creating a tool, such as Market Reader, was brought about to democratize institutional access to real-time research, Nordvig explains that he really just thought it would be fun to create something that could be accessible to a lot of people. His end goal was to try to educate the masses and Market Reader can begin that education process from a very high level.
Nordvig says that he wants Market Reader to cover markets, events and data, but doesn’t want it to just be a news aggregator. He wants it to search for the best information across multiple categories, but wants to bring the most useful stuff to the surface. It’s able to find movers in one area of the market and identify those companies or securities that are being impacted elsewhere. AI is the driver that helps generate these links.
If there’s so much irrationality intraday, how does the product sift through the noise? Nordvig explains that the basic building block is a 10-minute window with everything getting reanalyzed every 10 minutes. This allows for a sufficient amount of information to be captured in order to draw conclusions. The challenge in this process can come from whether the news itself it’s drawing from is stale. The system can be very focused on the quant data that it’s ingesting and Market Reader does a good job of that.
What is Market Reader telling us about what’s happening right now?
A lot of people are watching gold, but gold can be tricky. We’ve had a two-month trend of rising gold prices, which is an historical move. If you look at the flow data, however, gold is up despite ETF selling. If there’s secret central bank buying, it’s going to be very difficult to find data that confirms it. The system can identify that it’s not the usual movers causing the rise in gold prices and that may be the best it can do. It’s noting that a lot of the move is in the Asian time zones, so that gives you some direction.
Nordvig says that everything is hypersensitive to inflation right now and it’s the buzzword of the moment. Market Reader isn’t designed to tell you what CPI will be a year from now, but it can give insight into what’s causing it today. His human view is that there have been some funky things going on with consumer prices lately. Some of that has to do with prices getting reset and some of the updates are inconsistent or infrequent. It looks like the labor market is becoming more balanced and wage growth is starting to settle. Right now, we have virtually zero inflation in goods. It’s all coming on the services side.
One interesting area to examine right now is the employment market. The biggest controversy is where the job growth is coming from – full-time employment is flat, while part-time is rising. One important thing Nordvig is seeing is that there’s more than one economy – some people feel safe with their jobs, they own assets, etc., while the other side is struggling. We’re seeing that this is a really big split. As more mortgages reset, as more credit card debt rolls into higher yields, the lags are really long. It will take a while to see the effects, but that doesn’t mean it won’t come through. It will slow the economy over time and then it’s a matter of how the Fed will respond.
Other key takeaways:
- Anybody who’s in the financial advisor space with active clients will find this useful.
- Market Reader is designed to view markets in a comprehensive way, but we need to be humble about how advanced the technology is. We need to combine this with human judgment to assess how realistic the conclusions are.
- Market Reader was designed so that it focuses on what’s relevant in the here and now. If we use a 1-year lookback, PPI data, for example, becomes very important. If we used a 5-year lookback, not so much. Before COVID, nobody cared about PPI numbers and it was irrelevant, but that’s changed.
- There’s a much higher resilience to be able to handle high interest rates today. There’s an AI aspect to this that’s positive. Financial conditions are not moving in a dramatic way. The economy will eventually respond to rates.
- News is news – good and bad – and Nordvig wants to capture all new information. He ultimately wants to capture information that’s market-moving and report it when it happens. The power of AI is that it can sense some nuance. Market Reader offers high level insights, not financial advice.
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