Rosalind Evans
An estimated 300 million global full-time jobs are at risk due to the AI explosion, according to Goldman Sachs. This projection has caught the attention of investors, leading to significant returns on AI-related stocks.
Case in point: Nvidia’s stock has skyrocketed by 234% this year alone. Similarly, Alphabet’s shares have increased by 53%, and Microsoft’s by 37%. AI’s influence on the stock market is evident, with the Nasdaq Composite also seeing a 33% rise this year.
However, investing in AI is polarizing. Some view it as fostering innovation and efficiency, while others see it as a move to replace human jobs. A recent Morning Consult survey found that around two-thirds of Americans have concerns about AI jeopardizing their employment.
Why this surge in AI? Labour is not cheap. And its cost is on the rise.
Despite US inflation rates dropping and other economic indicators suggesting a slowdown, the job market remains robust. This is causing concern for Federal Reserve officials, who fear a wage-price spiral, a cycle where increased wages drive inflation higher.
This could spell trouble for investors. Goldman Sachs’ recent analysis indicates that S&P 500 companies saw a 9% YoY increase in labour costs, accounting for approximately 13% of their revenues. They predict this trend will continue.
Goldman’s analysis also showed potential: Median S&P 500 stocks could see an 18% earnings rise if they embrace AI automation for certain roles. Based on the wage analysis of each company’s median employee, they deduced these figures.
Highlighting the trend, Goldman introduced an index of S&P 500 companies with the lowest labor-to-revenue ratios. Notably, the list includes giants like Apple, Tesla, and Netflix. This group lagged behind the S&P 500 for most of the year but has recently outperformed it.
The consistent positive economic data has investors eyeing the looming inflation risks. Goldman believes companies in their index offer a strategic opportunity to counteract prolonged wage and inflation pressures. In essence, fewer human employees might mean better profit margins.
New Banking Regulations Target Bank Failures
US financial watchdogs, including the Federal Deposit Insurance Corporation and the Federal Reserve, recently approved new measures for banks. These aim to better prepare both large and regional banks for potential insolvency.
Key among these regulations is a requirement for banks holding over $100 billion in assets to issue around $70 billion in long-term debt. This would help cushion potential losses if insolvency fears arise, which could trigger mass withdrawals by nervous depositors.
Elisabeth Buchwald emphasizes the significance of this development. The goal is to transfer the risk of bank failures from depositors to bondholders. But this shift could come at a cost: higher interest rates which could erode bank profits and thereby, shareholder returns.
Following a series of bank failures, medium and regional banks have felt the pressure, of having to offer higher interest rates to retain customers.
This regulation joins another introduced in July targeting banks with assets over $100 billion. But there’s concern. Greg Baer of the Bank Policy Institute warns that these measures if not cautiously implemented, could hurt banks and limit crucial financing to smaller businesses.
The rule, pending finalization post a November 30 comment deadline, is expected to be effective by early 2025.
Amazon’s Office Return Ultimatum
Amazon CEO, Andy Jassy, has set the record straight for his employees: return to the office or find another job.
During a recent event, Jassy emphasized employees’ obligation to adhere to company policies, indicating that non-compliance with the return-to-office directive might endanger their positions. This came after the company flagged employees who weren’t frequenting the office as mandated.
Amazon’s stance was met with resistance earlier this year when over 1,000 corporate employees protested against the company’s in-office policy, labelling it as inflexible.
The landscape of the global economy is undergoing rapid transformation. From the unstoppable rise of AI in the stock market to the regulatory shifts in the banking sector and the corporate tug-of-war over remote work, the future is shaping up to be a balancing act between innovation and tradition. As companies like Amazon issue ultimatums, and financial regulators introduce protective measures, the only certainty is that adaptability will be the most valuable asset in the coming years.
