AI machine learning receives most of the publicity concerning today’s technological advancements, but the potential in quantum computing is just as exciting, if not more so. There’s a fundamental difference between quantum computing and AI. Artificial intelligence utilizes classical binary computing, where information is processed in bits, which can either be in an on or off position, as shown below. Quantum computing processes information using qubits, which are much more dynamic than the bits used in classical computing and exponentially increase computing power. Google’s quantum computing research department is on the cutting edge of development in the field.

The end game for quantum computing is to combine its power with AI machine learning applications in a revolutionary technology. Hence, the name of Google’s “Quantum AI” lab. Quantum computing lags behind classical AI in real-world applications. However, the gap is thinning with a recent breakthrough via Google’s Willow quantum chip. Per Hartmut Neven, the founder of Google’s Quantum AI lab:

Willow’s performance on this benchmark is astonishing: It performed a computation in under five minutes that would take one of today’s fastest supercomputers 10²⁵ or 10 septillion years. If you want to write it out, it’s 10,000,000,000,000,000,000,000,000 years. This mind-boggling number exceeds known timescales in physics and vastly exceeds the age of the universe. It lends credence to the notion that quantum computation occurs in many parallel universes, in line with the idea that we live in a multiverse, a prediction first made by David Deutsch…

There are similar scaling advantages for many foundational computational tasks that are essential for AI. So quantum computation will be indispensable for collecting training data that’s inaccessible to classical machines, training and optimizing certain learning architectures, and modeling systems where quantum effects are important. This includes helping us discover new medicines, designing more efficient batteries for electric cars, and accelerating progress in fusion and new energy alternatives. Many of these future game-changing applications won’t be feasible on classical computers; they’re waiting to be unlocked with quantum computing.

What To Watch Today

Earnings

• No earnings reports today

Economy

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Market Trading Update

Last week, we discussed that the selloff heading into Christmas was the setup for the beginning of the year-end “Santa Claus” rally. On Christmas Eve, Santa arrived, pushing the markets back above the important 50-DMA. However, the market sold off on Friday to successfully retest the 50-DMA. While it may seem that the “Santa Rally” stalled, I suspect that we could see some buying next week as portfolio window dressing concludes and traders position portfolios in the first two days of January.

As shown, momentum and relative strength are weak currently, but if the market can break back above the 20-DMA, this should bring buyers into the market. As we noted previously, the sell signal keeps a lid on price appreciation, and until that reverses, there is limited upside to the markets over this week. There is also the 24% possibility that a rally fails to materialize entirely. We suggest managing portfolio risk until the market ultimately makes a decisive move.

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We continue to monitor yield spreads, which remain near the lowest level since the “Financial Crisis.” When yield spreads were this low previously, this equated to excessive optimism about financial market conditions. This is the same currently, as investors are willing to overpay for the risk they are taking on. Unfortunately, such has not ended well previously, but yield spreads will be the leading indicator for investors to reduce portfolio risk more aggressively.

The Week Ahead

This week wraps up the holiday season with another light week on the economic data front. The Chicago PMI for December and pending home sales for November are on the docket this morning. Tomorrow, the S&P/Case-Shiller Home Price Index for October will be released. The consensus estimate is for the YoY change in home prices to fall to 4.1% from 4.6% in September. The market will be closed on Wednesday for New Year’s Day.

Thursday kicks off 2025 with the S&P Global Manufacturing PMI expected to fall to 48.3 in December from 49.7 in November. Friday will bring the most significant data release of the week with the ISM Manufacturing Index. The consensus estimate is for the Manufacturing Index to drop to 48.3 in December, following a sharp increase to 48.4 in November. Meanwhile, the consensus is for the Manufacturing Prices Index to jump to 52.2 in December from 50.3 in November.

Affordable Care Act & the Inflation of Health Care

When it was conceived, the Affordable Care Act (ACA) was hoped to improve healthcare access. At the time, roughly 20 million Americans were uninsured. The bill hoped to lower the rising cost of healthcare in the economy by providing a Government mandate.

However, as is always the case when “Big Government” steps in, the outcomes are generally worse, not better. Such should not be surprising. At a press conference on August 12th, 1986, US President Ronald Reagan said, “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’”

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