Almost every week now, a client calls and tells me what their AI assistant said about the market. It might be about gold, or about a crash they are convinced is coming. These tools follow the framing you give them, so people often come away with a more articulate version of the worry they walked in with.
So rather than let a chatbot answer, I recorded my answers to the three questions I am hearing most from clients right now.
- Are we headed for a crash?
- What does a new Fed chair mean for interest rates?
- What happens when the spending on AI slows down?
I finish with the two rules I come back to whenever markets get loud, and what we are doing in client portfolios right now.
Transcript
I get a lot of questions in a week, and lately a good number of them start with something an AI tool told somebody. A client will call and tell me what their AI assistant said about gold or a market crash or what they should be doing with their money. These tools follow the framing you give them.
If you sit down convinced the market is about to fall apart, what comes back is a more articulate version of what you already believed. I’m Jimmy Mortimer, Chief Investment Officer here at Solidarity Wealth. Rather than let a chatbot answer, let me take the three questions I am hearing the most right now and share my thoughts.
Are We Headed for a Stock Market Crash?
Question one, the first one that comes up almost every day, are we headed for a crash? My answer is that I expect a pullback. I don’t expect a crash, and I don’t think a recession is anywhere close, but I expect some turbulence. We have a new Fed chair, and the market historically likes to test a new Fed chair.
That is not because anything is broken. The market is seeing how the Fed chair responds under pressure. On top of that, September and October have historically been the roughest stretch on the calendar.
Could Midterm Elections and Seasonal Trends Increase Market Volatility?
Add midterm elections this fall, and you have a set of very clear catalysts for volatility. Here is why I don’t think we’re headed into a recession. Job numbers are fine.
They’re not great, but they’re also not terrible. They’re just fine. And when you look underneath the last inflation reading, the largest line item was financial services, which rises when everybody’s portfolio rises.
That is not the kind of inflation that does damage. Watch for gas, food, and shelter. Those are the ones that hurt families.
Why a Market Pullback Can Be a Normal Part of Investing
We have not had a meaningful pullback in quite a while, and I think we are due for one. That is normal, and it is healthy. It keeps prices from running too far ahead of the businesses underneath them.
But I want to prepare you for how it will feel. We have gotten used to declines that recover in about three weeks. So if this one takes three months, people are going to panic.
That is a normal part of a pullback, and it feels far worse than it is.
What Does a New Fed Chair Mean for Interest Rates?
Which leads into the second question I am getting. What does a new Fed chair mean, and where are interest rates headed? The market is extremely rate sensitive right now. You can watch it move on nothing more than a shift in expectations. What has changed, and I don’t think everybody has caught up with this yet, is the direction of the conversation. For two years, we all debated how quickly rates would come down.
Now, rate increases are back on the table because inflation hasn’t improved the way the Fed wanted it to. The Fed chair may hold the most influential economic job in the world. What he says, and how he says it, moves more money than almost anything else.
And a new Fed chair generally has an incentive to ease his way in, rather than make a dramatic first impression. The pragmatic path is to telegraph as much as possible, and avoid catching anybody off guard.
How Midterm Elections Can Affect the Stock Market
People ask me about the midterms too. My honest view is that markets dislike surprises far more than they dislike any particular outcome. A split government means more discussion and less action, and the market can price that. The unknown causes trouble.
What Happens to the Market if AI Spending Slows Down?
The third question is newer, and I think it is the most interesting one. What happens when AI spending slows down? Almost all of the money being spent to build out AI is coming from a small handful of the largest technology companies, and we are talking about hundreds of billions of dollars. The earnings strength we have seen across the entire market traces back to it.
That money moves outward into semiconductors, into industrials, into utilities, and construction, and everything that supports a data center, for instance. A lot of boats have been lifted by that spending. What I’m watching for is the moment shareholders stop being patient.
They are already starting to ask what the return on all this looks like. If you dig, you can find some real signs of it. At some point, I think one of these companies will decide not to spend as much as everyone expected, and that gives all of the other tech companies permission to do the same thing.
How Investors Can Avoid the AI FOMO Trap
When markets get noisy, I fall back on the same two rules. The first is to avoid the FOMO trap. A lot of the AI names that everybody piled into are well off of their highs.
When everybody is rushing in one direction, that is the moment to step back and ask what is being overlooked. The second rule is to know what you own and why you own it. If somebody offered to sell you the shop around the corner, you would look at the financials and figure out what it’s worth to you.
Why Knowing What You Own Matters in the Stock Market
And if you valued it at a million dollars, and they wanted $10 million, you would walk away. The public markets work differently. The market says 10, and plenty of other people say, I will pay you 11.
Nobody would do that with the business around the corner, but it happens every day with a stock ticker symbol. At Solidarity, we spend a lot of our energy making sure we are not the ones doing it. Part of knowing what you own is knowing it does not depend on any one person.
What Warren Buffett’s Investing Philosophy Says About Strong Businesses
Warren Buffett has a line I come back to often, buy a business that a ham sandwich could run, because eventually one will. Leaders leave, and good ones make mistakes. The businesses worth owning are the ones that keep working anyway.
How We Are Approaching AI Exposure in Client Portfolios
So what does all of this look like in our clients’ portfolios right now? You still have to participate in the market, but we don’t think it makes sense to carry single-company risk in the AI trade. So we have added exposure through broad funds that hold the whole technology sector, rather than any one specific company. When a single chip maker drops sharply, and they do, that decline has a much smaller effect on the portfolio than it would if we owned that one company outright.
What Investors Can Focus on During a Market Pullback
Beyond that, we are doing what we always do, looking for good businesses trading for less than we think they are worth. We pay particular attention when a share price falls for reasons unrelated to the business itself. That might be a leadership problem, or something embarrassing at the top that has no bearing on whether customers keep showing up.
Those situations sometimes hand you a strong company at a price the business itself never justified. So if a pullback comes this fall, here is what I would do with your energy. Go through what you own, one position at a time, and see whether you can explain why you own it.
That will serve you far better than trying to guess what the market does next. Thanks for watching!
