AI won't beat the market any better than Wall Street

tech.hindustantimes.com:

Artificial intelligence is coming for finance. Researchers are using ChatGPT to decipher Federal Reserve statements and to mine headlines for clues about where stocks are headed. JPMorgan Chase & Co. just launched an AI bot that generates trade signals from Fed statements.

While AI may soon do the work of Wall Street, it's unlikely to do any better for investors than the industry it seeks to replace. Most financial professionals who try to outsmart the market by parsing Fed statements or financial news — and who knows what else — have little to show for it. The vast majority of actively managed mutual funds consistently underperform their broad market benchmarks, and most hedge funds are no better. Investors are more likely to be better off with low-cost index funds that track broad markets.

JPMorgan knows this as well as anyone. I counted about 380 actively managed JPMorgan mutual funds with a 15-year track record in Morningstar's database, including the various share classes. Of those, 65% underperformed their benchmark on a risk-adjusted basis through April, according to Morningstar's calculations. If JPMorgan's analysts are using Fed statements or headlines to make investment decisions, they're wasting their time.

There's no predictive value in Fed statements or financial news. Fed statements don't guarantee the future path of short-term interest rates, which mostly depend on inflation and the health of the labor market, neither of which anyone can reliably forecast, including the central bank. And even if you knew where short-term rates were going, you still wouldn't necessarily know the impact on longer-term rates or asset prices more generally, including stocks.

Financial news isn't any more useful. It's not