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“Technology is a gift of God. After the gift of life, it is perhaps the greatest of God's gifts. It is the mother of civilizations, of arts and of sciences.”

— Freeman Dyson

Friday technical charts

Nasdaq notched a new all-time high this week, right before a Halloween scare sent mega-cap tech stocks sharply lower — Amazon, Alphabet and Microsoft all reported they’re spending scary amounts of money on AI-related investments. 

Amazon alone raised its capital expenditure to $22.6 billion in the last quarter, up from $17.6 billion in the prior quarter.

That may be bad news for investors — we still don’t have any idea what the financial return will be on these investments — but the techno-optimist promise is that it’s good news for nearly everyone else.

I saw a lot of supporting evidence for that hopeful view this week.

Consider, for example, the rapid advancements in robotics: Meta has developed human-level touch perception for robots, an AI startup has “digitized scent,” giving robots a sense of smell, and a robot recently played lead cello for a Swedish symphony.

If that’s all a little too Terminator for you, check out this amazing demo from Adobe on how AI is changing animation and this case study from Anthropic in which their coding co-pilot accelerated the pace of software development by as much as 100x.

We also had news this week that coming versions of the LLM chatbots from both Alphabet and Anthropic will be truly agentic — large action models that take over your computer and do your shopping, book your flights and build websites for you, among other, yet-unimagined things.

Best of all, the AI boom is “paving the way for a nuclear breakthrough” as Big Tech commits tens of billions of dollars to developing small nuclear reactors (SMRs) that could revolutionize power generation.

In short, it felt like things were accelerating this week.

Next week will probably feel different.

Markets are “bracing for the biggest post-election swings in US Treasury yields in more than 30 years,” Reuters reported — and I take that as evidence that the boilerplate political rhetoric about this being “the most important election of our lifetimes” is less hyperbolic than usual.

Stocks, bonds and options are increasingly pricing in the possibility of a Republican sweep that would be expected to lead to higher tariffs, higher inflation and higher interest rates.

A surprise Democratic win would force markets to reprice for higher taxes and lower growth.

It’s a lot less fun than thinking about what technology will be doing for us next.

Will politics ruin this good thing that we’ve got going?

Let’s check the charts.

Trending lower:

The US economy only added 12,000 jobs in October vs. 113,000 expected. 

Hurricanes and strikes may have cost about 80,000 jobs (that should come back this month), but negative revisions to prior months suggest the job market was already cooling.

Growth is still running hot, though:

Q3 US GDP growth was reported this week at a robust 2.8%. This chart from @jasonfurman shows the US economy has not only fully recovered from the pandemic, but is now well above its pre-pandemic trendline. There was no reason to think things would turn out this well (economically, at least).

Outperforming:

You’d never know it from listening to the political discourse, but this graphic from the WSJ shows how extraordinary the post-pandemic boom in US growth and productivity has been. 

The Iggy Azalea indicator:

US companies have been saying that earnings have bottomed and that is “something strange,” according to John Authors, because “earnings are still increasing and have been for more than a year.” This must be what a no-landing economy looks like.

If it can’t get any better…

The S&P 500’s 35% advance over the past year has come amid unusually low volatility, resulting in “one of the greatest risk-adjusted yearly returns in the history of the US stock market,” per @patrick_saner.

The next 12 months should be harder:

This dual graphic from Bank of America shows that both stock-specific risks and passive inflows are near all-time highs — which seems like a toxic mix for future returns.

Trend change?

Prediction market odds for Trump vs. Harris have converged in the direction of polling-based probabilities over the last few days and probably won’t change much between now and Tuesday. 

Are we ready for it?

Unscientifically, it feels like stock, bond and crypto markets would be more surprised by a Harris win than her 43% probability would suggest.

But Trump’s policy proposals may be so economically consequential that markets aren’t fully priced for his 57% probability, either.

Whatever the outcome, government policy seems likely to put markets and the economy in a much tougher place than it has been over the last few years.

If so, let’s hope we can technology our way out of it.

Have a great weekend, low-risk, high-return readers.

— Byron Gilliam

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Listen to Bell Curve on Spotify, Apple Podcasts or YouTube.