February 18, 2023 | ChatGPT, Retail Sales, Option Contracts and 2023 Inflation

ChatGPT
More hype has come into the markets, and it reminds me of the meme stocks and the cannabis companies. This time it is AI technology, and it is particularly around ChatGPT. Even large companies like Microsoft have seen a jump of nearly 20% in their stock price. The problem is ChatGPT doesn’t have an AGI or artificial general intelligence in which machines are able to learn and think for themselves. ChatGPT derives its information from word relationships found on the Internet and we know all the information on the Internet is not reliable which has led to incorrect responses from these AI products. So, while the excitement about ChatGPT is driving up stock prices, consumers will become disappointed with the responses they receive from ChatGPT, and I believe the stock prices will fall back again. One other potential pitfall could be litigation. We know how much our country loves lawsuits. To begin with who will be liable for misinformation? Also, another question mark is copyright protection. Copyrighted works are being used to train these AI services without consent, that could create more problems. For now, I'll avoid the hype!

Retail Sales
People may complain about the economy and inflation, but they are still spending. Retail sales in the month of January increased 3% from December, which easily topped the estimate for a 1.9% gain. Compared to last year retail sales were up 6.4%, which was right in line with the CPI reading of 6.4%. Compared to January 2022, every category in the report showed a gain in sales except for electronic and appliance stores which were down 6.3%. The big winner in the report continues to be food services and drinking places as they saw a gain of 25.2% compared to January 2022. Other big gainers included grocery stores up 6.6% and clothing and clothing accessory stores up 6.3%. With higher energy prices gas stations continued to see gains with an increase of 5.7% compared to last year. This is much more muted as we are now lapping the higher energy prices in 2022. All in all, I'd say this was a very strong report showing the consumer is still active. It confirms my belief that if we see a recession, it will be very mild.

Option Contracts
There’s a lot of risk in the market, especially with the technology companies and your expensive growth stocks. One indicator is the number of option contracts that are traded on a single day. In early February, 68 million option contracts were traded in a single day, that is an all-time record. I think this could also mean we could see a big drop again in the expensive growth stocks.

2023 Inflation
The January CPI report was a disappointment today as inflation climbed 0.5% compared to December and 6.4% compared to last January. This is compared to the estimates for respective increases of 0.4% and 6.2%. The headline number also did see a small decline from December's gain of 6.5%. Food costs remain stubbornly high with prices gaining 10.1% year over year and food at home costs grew even more with an 11.3% increase. Energy also was a problem in the report as there was an 8.7% increase. Electricity was a big contributor as it was up 11.9% compared to last year. Shelter costs were up 7.9% compared to last year, and the monthly increase of 0.7% accounted for about half the monthly gain on the index as it accounts for about 1/3 of the entire index. I've talked about this in the past, but I do believe this component will soften throughout the year which would have a major impact on the overall CPI. There were some positives in the report as used cars & trucks saw an 11.6% decline compared to last year, televisions were down 13.2%, computers were down 6.2%, major appliances were down 3.9%, and bacon and related products were down 3.9%. I continue to believe that inflation will continue to decelerate as we progress through 2023, but it will likely remain a bumpy ride.