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Mean reversion: Has AI abolished gravity for share prices?

Despite the Magnificent Seven, US stocks are predicted to be riding for a fall

    • Financial pundits have nevertheless been invoking mean reversion because the S&P 500 has risen by 94 per cent over five years to all-time highs, the main reason for which is the barnstorming performance of US tech stocks.
    • Financial pundits have nevertheless been invoking mean reversion because the S&P 500 has risen by 94 per cent over five years to all-time highs, the main reason for which is the barnstorming performance of US tech stocks. PHOTO: AFP
    Published Fri, Nov 15, 2024 · 11:00 AM

    HERE is a good phrase for suggesting a stock price has risen unsustainably: “Up like a rocket, down like a stick.”

    It works nicely because gravity is an analogy commonly used in investment. Hence, all that “soaring”, “climbing”, “falling” and “plunging” which market reporters attribute to shares.

    But “gravity” is just too widely understood to sound technocratic. So financial natives talk about “mean reversion” instead.

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