In today’s email:

  • Trump shot: Markets shrug off assassination attempt, Truth Social jumps 30%.

  • Chart of the week: Separation between large-cap tech stocks and small-caps hits Dot Com Bubble levels.

  • No lifeline for Macy’s: Department store retailer ends buyout talks with activist investor.

  • AI can’t be trusted (yet): The AI trend is still getting its footing, but the trend is still a “gold rush.”

Starting with the big news of the weekend…

As I’m sure you’ve seen by now, former President Donald Trump survived a shooting at a speech in Pennsylvania on Saturday.

From a strictly investing standpoint, markets seem to have shrugged off the news. All three major U.S. indices rose slightly. But there was one big mover on the news…

Trump Media and Technology Group (DJT) shot higher. The free-speech-focused technology and social media company rose more than 30% at the open and held onto those gains for the rest of the day.

And the assassination attempt on Trump this weekend brought out even more talk of the election.

Brad Thomas, editor at Wide Moat Research, wrote today in Intelligent Income Daily about how he believes the country has come together over this event:

Many people – even those who never voted for him – were forced to consider what a world without him would look like. And they didn’t like it.

And possibly because of this, people turned toward the upcoming election.

Predictions markets indicated that Trump’s chances of winning have risen since last week. From Reuters…

Online betting site PredictIt showed bets of an election win for Trump at 66 cents, up from Friday’s 60 cents, with a victory for Joe Biden at 26 cents.

Here’s how these prediction markets work…

Folks can “buy shares” in Trump to win at 66 cents on PredictIt. If he wins in November, PredictIt will pay out $1 for every share someone buys. So not only is Trump the clear favorite, he’s extended his lead.

Only time will tell how the markets and voters will react to this event. But remember, our colleague Dr. David Eifrig is expecting heightened volatility as we approach election season. So while today’s trading was rather calm, we should see some big price swings in the next few months.

The big stock market winners are extending their lead…

We’ve talked in previous MarketWise Dailys about how the market is increasingly concentrated in a few big stocks. The “Magnificent Seven” – made up of Alphabet, Apple, Amazon, Meta Platforms, Microsoft, and Nvidia – make up more than 30% of the S&P 500.

And their performance may be leaving the small-cap stocks behind.  

Our colleague and Florida Republic editor Garrett Baldwin shared his “Chart of the Week” in his free Postcards from the Florida Republic e-letter this morning:

Here’s how Garrett explained the chart…

The breadth between the AI stocks and the rest of the market has hit epic levels. The last time we saw an absolute frenzy like this was the height of the Dot Com Bubble.

That’s exactly what it feels like. If investors are looking to outperform the market, there are few other places to look than the biggest names. But this extreme could usher in a huge shift. More from Garrett…

The question people are asking… is now the start of a vast dislocation that brings the smaller cap stocks back into vogue? I would hope so. The small-cap stocks have drastically underperformed in this AI boom, but it’s difficult to project when such a rotation will occur and remain permanent.

We’ve seen this before…

Right around the last time we saw large-cap tech stocks outperform small-caps by so much, it kickstarted a huge catch-up trade. According to CME Group, between 1999 and 2014, the Russell 2000 more than doubled the return of the S&P 500.

But, like Garrett said, this chart doesn’t mean this outperformance will start today. Last week was a start, with small caps jumping 5% and the Nasdaq falling slightly.

Right now, the big tech stocks are still the ones investors want. 

Garrett’s not the only one seeing some life in small caps. Ten Stock Trader editor Greg Diamond covered the divergence – and possible reversal – between the Nasdaq and the iShares Russell 2000 Fund (IWM) in his Weekly Market Outlook this morning…

If history rhymes, we could see IWM outperform again in the short term while the Nasdaq and other high-flying sectors, like semiconductors, take a breather and work off overbought technical conditions.

Again, this may not happen right away. But it’s a strong sign that small caps are readying for a move higher.

  • Macy’s loses a lifeline…

As we all know, the retail landscape has changed drastically over the past 10 years. The rise of companies like Amazon has shifted shoppers online. And that’s been a big problem for physical retailers…

Just take a look at Macy’s (M). The department store giant’s revenue has been steadily declining since peaking in 2015. And its store count is in a downtrend too. The stock has plummeted as a result – down more than 75% from its 2015 high of $70 per share.

But it seemed like investors could soon recoup some of the losses. In December, activist investor Arkhouse Management put forward an offer to acquire Macy’s for about $5.8 billion (a 32% premium to the shares at the time).

And in May, it boosted the offer to $6.8 billion. But now those talks have fallen through. Macy’s just announced that its board has terminated buyout discussions with Arkhouse.

Many seem to believe that Arkhouse was looking to monetize Macy’s property assets instead of picking up the retail operations.

And Macy’s said that Arkhouse did not give them what they asked for – their highest purchase price and how it would be financed. 

After the buyout termination news, the stock quickly fell back to pre-buyout levels. Macy’s is still fighting a losing battle in the retail space.

AI stocks may be running but the technology still has a ways to go…

Investors are frenzied for artificial intelligence (AI) stocks. And they’re rushing into buy all the big names as soon as they can. But the underlying technology isn’t perfect, yet.

In today’s MarketWise Daily, originally from the June 28 issue of the Daily Authority free e-letter, Altimetry founder Joel Litman explains that we can’t trust AI for everything just yet. As he wrote…

When you enter in a question, request, or prompt, the model doesn’t scour the web like Google to give you an answer. Instead, it crafts what it thinks you want to see… even if it’s an outright lie.

That doesn’t mean AI won’t be life changing. And many companies are still investing heavily to be the winners from this trend. But Joel says it’ll be hard to compete with the companies with deep pockets. He continued…

The AI revolution is like a gold rush… Everyone wants in on the action. Some tools will lead investors to tremendous gains. Others will come up short. And just like any other gold rush, the best place for your money is in the companies supplying it.

In the AI ecosystem, it’s the suppliers that allow all these startups to function in the first place. By the time those startups get into trouble, Big Tech and hardware companies will have already made their money.

Over to Joel…

It’s Too Early to Trust AI Completely

OpenAI’s latest project is turning a lot of heads…

GPT-4o is supposed to be its best AI model yet. And it has AI enthusiasts and investors excited, especially after the OpenAI team demonstrated several of its features live.

It can translate a conversation between most languages on the planet. It can tutor you on math problems. It can even give you fashion advice.

And what’s even more wild… its predecessor, GPT-4, passed some of the most difficult tests in the world. It even received a passing score on the Bar, the law licensure exam.

Deep learning is just so versatile. And this model is a glimpse of what the future might look like. With so much advancement already, we could someday see completely autonomous assistants following each person around in the future.

But that day will not be today. And it likely won’t be for decades.

While GPT-4o and other top-notch AI models are revolutionary, there are still so many concerns surrounding using them… and investing in them.

To get a better idea of GPT-4o’s ability, I did some ‘boots on the ground’ research…

I asked GPT-4o to make a reservation at a steakhouse in Boston. All I gave it was the name of the restaurant… and told it I wanted a 7 p.m. reservation that night.

Within a few seconds, it confirmed my reservation. It said I could expect an e-mail with further confirmation.

The only issue was… I never gave it my e-mail address. Nor did that e-mail ever come.

Like all of its predecessors, GPT-4o can’t fully access the Internet. It can’t send e-mails.

Without some prodding, though, it probably won’t tell you that. These language models aim to please.

When you enter in a question, request, or prompt, the model doesn’t scour the web like Google to give you an answer. Instead, it crafts what it thinks you want to see… even if it’s an outright lie.

When Google parent Alphabet (GOOGL) launched its chatbot, formerly known as Bard, one ad showed it answering the question… “What new discoveries from the James Webb Space Telescope can I tell my 9 year old about?”

Bard responded that the telescope, which only started operating in 2021, took the first picture of a planet outside our solar system.

Reuters then pointed out that another telescope took pictures of an “exoplanet” back in 2004.

And in my restaurant-reservation example, I had to confront the AI before it admitted that it doesn’t have the ability to make reservations.

That’s why, when you’re using these tools, it’s so important to be responsible and intelligent about it. Be extremely careful about what you ask it to do. And don’t accept its answers at face value.

AI won’t tell you what it is and isn’t capable of. It’s not guaranteed to give you true information.

More companies are claiming to use AI and AI tools every day…

And not all of those AI offerings are created equal.

The AI revolution is like a gold rush… Everyone wants in on the action. Some tools will lead investors to tremendous gains. Others will come up short.

And just like any other gold rush, the best place for your money is in the companies supplying it.

In the AI ecosystem, it’s the suppliers that allow all these startups to function in the first place. By the time those startups get into trouble, Big Tech and hardware companies will have already made their money.

The companies with the data will win no matter what. That’s where you should be looking for AI opportunities. 

Joel believes a huge announcement from Silicon Valley is only days away. The last time we saw something like this, at least 10 different stocks rose 1,000% or more within a single year.

This time around, an AI “panic” will be the catalyst. And it’s important as ever to be in the right AI stocks, not just the most popular ones.