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The stock market sure is a strange beast. At the beginning of April, it nosedived following President Trump’s tariff bombshell. In many ways, that wasn’t surprising, as the consequences of an all-out trade war for the global economy would be dire.
But the bounceback since then has arguably been strange. Take the FTSE 100. It just racked up 13 consecutive days of gains, marking the blue-chip index’s longest winning streak since 2017.
Meanwhile, the S&P 500 edged higher yesterday (30 April), despite data showing the US economy performed worse than feared in the first quarter.
This is why I prefer to be a long-term investor. Unlike day traders, I don’t have to predict where certain stocks or the market will move daily. I have no advantage over such a short time frame.
By contrast, the odds are on my side over time, as the stock market trends upwards. But on a week-to-week basis, as we’ve seen recently, it can literally do anything.
To answer my own question then, I have no idea whether we’ll be in a bear or bull market in one year’s time. I can envision both scenarios. One where neither the US nor China blinks on trade, sending the global economy into the doldrums. And one where trade deals are thrashed out and a semblance of stability returns, sending the market on a massive bull run/relief rally.
Whatever happens, I know that getting from point A to B won’t be a smooth ride.
Noise vs signal
One thing I find helpful is distinguishing between ‘noise’ and ‘signal’.
Noise refers to short-term, often irrelevant market movements. That is, sudden price jumps or drops caused by headlines, rumours, and reactions to small news events. Day traders often treat such noise as buy or sell cues in an attempt to make a quick buck.
But a signal is meaningful information that helps me understand the long-term potential of a trend or company. For example, a firm’s earnings growth trajectory, strengthening competitive advantages, or expanding market opportunity.
Unprecedented scaling through AI
Let me give an example of what I mean from the perspective of a Duolingo (NASDAQ: DUOL) shareholder.
Yesterday, reports emerged that Google Translate is planning to launch a ‘Practice’ mode, likely powered by Gemini AI. This could signal a potential long-term threat to Duolingo’s position as the world’s leading platform for learning languages.
However, yesterday was also when Duolingo launched 148 new courses, more than doubling its current offering. CEO Luis von Ahn said: “Developing our first 100 courses took about 12 years, and now, in about a year, we’re able to create and launch nearly 150 new courses. This launch reflects the incredible impact of our AI and automation investments.”
For me, there are a couple of important signals here. First, it shows how utterly transformative generative AI already is for the productivity of companies that embrace it.
Second, it should massively expand Duolingo’s addressable market at minimal extra cost. Previously, Spanish speakers couldn’t learn Mandarin on Duolingo, and vice versa. Now they can, and it could turbocharge the company’s growth.
In a world full of news and data, the challenge in my mind is figuring out what actually matters. As a Duolingo shareholder, I believe these two pieces of information do.
