ChatGPT loves this bull market. Human investors are more cautious
Add Axios as your preferred source to
see more of our stories on Google.
Illustration: Tiffany Herring/Axios
Computer-driven traders are jazzed about this bull market, and if you ask ChatGPT, it will quickly tell you to invest in the S&P 500. Machines and AI driven by patterns and data seem to lack what makes human investors more cautious: fear.
Why it matters: Artificial intelligence is to retail traders what computer-guided, algorithmic trades are to financial firms. Both technologies are proving to be more optimistic investors than their real-life counterparts. The consequences of that bullishness could be severe for retail traders.
What they're saying: "Retail investors are poised to use these large language models blindly… institutions know how to deal with the biased prompts," says Andrew Lo, professor of finance at MIT.
- Lo argues that retail investors are not as familiar with AI's natural bias toward optimism, which makes it prone to agreeing with its prompter.
- If you ask AI if you should invest, it may say yes. Asking for a bull and bear case is a better tactic for receiving a nuanced response.
Driving the news: Algorithmically driven trader optimism exceeds that of human traders at levels not seen since early 2020, according to Deutsche Bank data reported by Bloomberg.
- A recent Betterment survey, meanwhile, found that the majority of retail investors are using generative AI to inform their financial decisions.
Reality check: Beyond the machines, investor caution about this bull market is growing, with several major banks warning of a market pullback near-term.
- The list of bearish nightmares keeping human investors up at night includes concerns about the labor market, the health of the consumer, concentration risk, valuation concerns, deficit doubts —and yet the market keeps going up.
Between the lines: Machines don't fear tariffs; they follow the charts. That rearview-mirror logic could tempt retail investors to ignore real risks.
- Machine-driven trading leans on in-depth market technicals, while ChatGPT is likely to mention that stocks have historically always recovered.
Yes, but: "AI isn't inherently more or less bullish than human investors—it simply makes decisions based on the context it's given," George Sivulka, founder and CEO of Hebbia, an AI platform for finance, tells Axios.
- Using AI to get rid of emotionally driven investment choices could help retail catch up to institutional investors, he argues.
The bottom line: Not all machine-driven trades use AI. But it's clear that AI and the machines are more bullish than human investors. And the stakes of that are higher for those without a huge firm to put guard rails on their investment decisions.
