The ongoing debate about the high spending by AI companies is intensifying, but a broader thesis is emerging. AI is now casting uncertainty across more industries, unsettling investors and markets alike.

 

Software stocks have been the most obvious area of concern. The sector, and Microsoft in particular, has seen relentless selling. However, other areas, from finance to accounting to insurance, are increasingly being questioned.

 

As a result, this week it has been a game of moving chairs, where suddenly a story appears touting a breakthrough in an accounting or finance tool. Down goes brokerage stocks. Anthropic PBC, an AI research and development startup, recently announced Claude 4.1, an AI chatbot that makes writing tasks easier. OpenAI, their competitor, offers ChatGPT, which is churning out outputs that analysts expect will disrupt industry after industry over the next two years.

 

No one really knows who the winners and losers in this AI threat will ultimately be, but short-term traders are taking advantage of the uproar while roiling the markets. As I warned, February is turning out to be a volatile month in any case.

 

Two macroeconomic events contributed to the market's gyrations this week. The delayed non-farm payroll report for January was an upside surprise, adding 130,000 new jobs versus expectations of only 55,000. Market participants did not like the number because stronger job growth reduces the reasons for the Federal Reserve Bank to lower interest rates.

 

On Friday, the Consumer Price Index for January was slightly weaker than expected, rising 2.4 percent year over year. Markets liked that result since it sort of balanced out the picture for the Fed. Weaker inflation, stronger labor gives the Fed some room to ease, or so the story goes.

 

As for me, I no longer consider the government's data as unbiased. It is an election year, and I expect the administration will tilt the numbers to put them in the best possible light. It happened under the previous president, and it will happen under the next president.

 

To me, the numbers were much ado about nothing. The expectations that the Fed will ease before June are quite low in the betting market. I concur. After the new Fed Chair takes his seat, then monetary policy will ease, and not before. That leaves me focused instead on geopolitics, trade policy, and how much the government can spend to boost the economy.

 

The fear that the U.S. will take military action against Iran as early as this weekend has supported energy prices. Anything can happen, but somehow, I don’t think another strike is in the cards, at least not now.

 

As for the overall market, this week saw the momentum winners of last year get hit one by one. Software, then hardware, financials, real estate, and consumer discretionary all got taken to the woodshed. Even metals and mining stocks experienced steep one-day declines with little or no reason.

 

The hysteria that AI is "coming for Wall Street" will likely continue. In my opinion, anyplace that relies on structured, repetitive workflows will be disrupted. Those that offer a human connection and add value will be enhanced and benefit from AI. But in the meantime, rotation in and out of various sectors will provide opportunity for traders and volatility for long-term holders. We are in a trading range. I expect that will be the playbook for the rest of the month.

 

There were concerns that U.S. tariffs during the Trump presidency would spark similar responses from other nations. This could have greatly reduced global trade, possibly causing an economic recession. That outcome did not happen, but a different development did.

 

While retaliation is still a possibility, Donald Trump's multiple tariff threats have proven to be more of a negotiating tactic than anything else. The downside for foreign nations is that it has disrupted trade, stock markets, and geopolitical discourse. After eight years of this, most countries have concluded that it is far easier to do business with someone else in trade.

 

Since 2017, many trade deals between nations have excluded the U.S. Most of these deals happened quietly and received little attention. Recently, however, larger and more significant agreements have started to draw notice.

 

Last month, one of America's chief trading partners, Canada, announced a landmark agreement with China. Prime Minister Mark Carney, along with a delegation of Canadian businessmen, visited China, met with Chinese President Xi Jinping, and agreed to lift or lower tariffs on a variety of products. Everything from Chinese electric vehicles, Canadian lobsters, crabs, peas, and pork was on the table.

 

A week later, Canada and India announced an agreement to increase trade, centered on India's willingness to buy Canadian crude oil and natural gas exports. Currently, 97 percent of all of Canada's energy exports are earmarked for the U.S. That is changing. Carney has vowed to double Canada's non-U.S. exports. Therefore, targeting India makes sense since it is the third-largest consumer of oil and LNG.

 

Switching gears, at the end of January, the European Union and India clinched what was called "the mother of all deals," according to the head of the EU's executive branch. This new free trade agreement intends to deepen economic and strategic ties. If successful, this positive trade pact could impact as many as 2 billion people. The accord will allow free trade on almost all goods between India and Europe, covering everything from textiles to medicines.

 

Indian Prime Minister Narendra Modi said the agreement "represents 25 percent of global GDP and one-third of global trade." The deal is in response to the Trump administration's steep import tariffs, which have targeted both countries. Trump's duties and tariffs have disrupted established trade flows that have been in effect for decades, and our trading partners have had enough of it.

 

As for China, Trump's efforts to corral China's trade surplus have backfired. China recently reached a record $1.1 trillion trade surplus despite Trump's tariffs. U.S. tariffs have forced many nations, especially in Southeast Asia, to look for other trading partners, and China has gladly stepped in to take America's place.

 

As a result, the U.S. deficit with global trading partners nearly doubled in November, with EU trade accounting for a third of the increase and the goods deficit with China rising by about $1 billion to $13.9 billion. Year over year, the U.S. trade deficit rose 4 percent.

 

Since Donald Trump has come on the scene, the U.S. share of trade flows has been steadily declining. Over the past eight years, four of every five nations have seen trade rise as a share of their GDP. The one exception has been the U.S., where it has dipped to around 25 percent of GDP.

 

Make no mistake: America remains a dominant financial and economic superpower. The idea of "America First" has benefits — as the U.S. outpaces most peers in growth, without relying on trade. While its share of major global equity indices is almost 70 percent, it accounts for only 15 percent of global trade, a figure that is projected to continue declining.

 

While America looks inward, the EU has signed eight agreements and China nine, including a 15-nation Asian partnership the U.S. abandoned. The EU also signed major deals in South America and Mexico.

 

After nearly a year of intermittent negotiations and tariff threats, the U.S. and India abruptly signed a free trade agreement this week, just days after the EU/India announcement. Although details remain unsettled, the agreement is largely symbolic: it would lower India's main tariff from 25 percent to 18 percent and remove an extra 25 percent tariff that Trump imposed last summer in response to India's Russian oil purchases.

 

While the agreement is being touted as a win-win for both parties, India won't be buying U.S. oil to replace Russian energy. Thanks to the India/Canada deal, it is Canada that will benefit from that transaction. As the U.S. turns its back on free trade and embraces a mercantilist and tariff-fueled state economy, it leaves the door wide open for others to fill the vacuum.

 

What goes up must come down, or so they say. The run in artificial intelligence stocks that propelled markets higher over the last two years has ended at least for now. Unfortunately, the area is taking the markets down with it.

 

Investors have certainly enjoyed a great run in all things AI. Plenty of companies have seen their stocks double and even triple in a short period of time. Momentum traders had a field day. When that play began to falter, other areas caught their attention. Traders began to sell AI and moved the proceeds into precious metals.

 

At first, it was just a few brave souls. But as that trade began to work out, more jumped in until it became a stampede. Like the AI trade before it, bidding up precious metals became a global phenomenon. U.S. and Chinese traders took the lead, and before long, the buying frenzy became a 24-hour trade of epic proportions. In January, the prices of precious metals exploded higher.

 

As AI and crypto prices fell, the market for precious metals soared. However, the gold and silver market is much smaller than the technology market. As such, metals soared in price far faster than the AI trade. It was a classic supply-and-demand situation — too many traders chasing too few investments. Until it wasn’t.

 

Over the last week or so, we have seen the momentum trade reverse. It started last Thursday in Asia and has declined steadily since then. This week, spot silver saw a breathtaking two-day bounce, only to fall midweek as Chinese traders sold it, sending silver down 18 percent by the time the U.S. market opened on Thursday morning. On Friday, prices rebounded again.

 

In the meantime, cryptocurrency prices, which have a high correlation to the tech-heavy NASDAQ index, fell as AI stocks deflated. This week, all of crypto's gains since the Trump Pump have been wiped out. Many players in both crypto and AI are now realizing momentum works both ways.

 

You may notice that the above explanation has little or nothing to do with fundamentals. Not a word about economic growth, inflation, Donald Trump, or tariffs and trade. None of that mattered. That is normally a warning that the overall market has reached a speculative peak that cannot continue without some consolidation.

 

So, what now? Does this mean that the bull market is over? Not at all. It just needs to consolidate a bit. To clarify, remember my thesis explaining the Santa Claus rally: the global flow of funds that fueled those gains is now reversing, as it does every year. With less money in the system, there's less fuel for gains — a simple but true relationship. Still, if this pullback continues, there are plenty of sectors worth your attention.

 

I still like emerging markets and overseas stocks in general. Small-cap stocks, in my opinion, will be the main beneficiaries of all this AI spending by the big guns. Google just reported a massive $180 billion spending plan for 2026; double the already massive bet they made last year. Amazon announced an additional $200 billion in AI outlays.

 

These stocks sank on the news, despite Wall Street applauding the confidence management showed in AI's future. But rather than buy Google and wait for a multi-year payback, I prefer to buy small businesses that will ultimately grow and improve productivity despite lacking the capital to expand their labor force.

 

It is a midterm election year, so the government spending and other goodies that Donald Trump is throwing at the market in the months ahead should keep the economy and the stock market buoyant. That should benefit anything small-cap like regional banks and maybe biotech. Materials, industrials, defense, and energy should also gain. The technology sector will still participate; it just won't lead as it has in the past.

 

The S&P 500 has lost all its gains since the beginning of the year at this point. My worries over AI expansion have come home to roost. As for precious metals, although they have been in a bull market for well over two years, I warned investors two weeks ago to take profits across the board in this area. It is not the end of AI, nor is it the end of the bull market in precious metals.

 

I think the worst damage has already been done in gold, but probably not the gold miners. Silver is still in no man's land. The problem is that the volatility in these metals makes them a "no-touch" for most of my readers right now. If you still want to take a stab at it, you know my email.

 

Younger generations cannot afford to buy a home. They cannot even make the down payments necessary to take out a mortgage. Borrowing the down payment from your 401(k) might make sense, especially if the Trump administration helps out.

 

Last week, the president's director of the National Economic Council, Kevin Hassett, said the administration was finalizing a plan for some 401(k) funds to go toward home down payments. He said it would be part of a series of White House initiatives on housing affordability.

 

"I'm not a huge fan," said the boss. Trump said, "One of the reasons I don't like it is that their 401(k)s are doing so well." 

 

And that is true. The problem is that after several years of exorbitant gains, the potential for a large sell-off is growing.

 

Readers should know you can already use your 401(k) for a home down payment, either through a withdrawal or a loan, though both options have drawbacks. Under existing hardship withdrawal rules, buying a principal residence is one of the permitted reasons.

 

The problem is that you owe income tax on the withdrawal, which could also move you into a higher tax bracket. If you are younger than 59 1/2 years old, you owe an additional 10 percent penalty on the money you withdraw. You also lose out on years of future tax-free earnings on the money you withdrew.

 

However, you also have the option to borrow the money for a house from your 401(k) to the tune of $50,000 or half the value of your account, whichever is less. But there are several drawbacks. For one, you are required to repay the loan within five years and report it to the bank if you are applying for a mortgage.

 

In addition, if you leave your job, you must repay the loan by the due date of your federal income tax return, or the loan will be considered a withdrawal. That would trigger income taxes and possibly another 10 percent early withdrawal penalty if you are under 59 1/2 years old. Worse, depending on your plan, you may not be able to contribute to your 401(k) until you pay off the loan.

 

You are charged interest on the money you borrow, usually two points over the prime rate. The good news is that you are borrowing from yourself and earning a little on the funds you withdraw. The downside, whether borrowing or withdrawing, is that you miss out on potential investment growth for retirement savings. That final negative is what the president doesn't like.

 

How could the government help reduce the negatives? An increase in the borrowing or withdrawal limit might help. They could also do away with the 10 percent tax penalty for those under 59 1/2 if you were to withdraw rather than borrow funds or even make the withdrawal tax-free if it was earmarked for the purchase of a home.

 

For borrowers, the IRS could also extend the repayment period from 5 years to 10 years or longer. The rules could also change for those who have left their job. Rather than forcing repayment or treating it as a withdrawal, the rules could be changed. For example, as long as you obtained another job before the end of the tax year, the borrowing rules would remain the same and not trigger the exiting tax consequences.

 

The issue I am sure the administration is wrestling with is that withdrawing the money from your tax-deferred savings account to buy a house puts those funds on a different track. In an era when younger generations and many politicians are convinced there will be no social safety net like Social Security, saving for retirement becomes critical.

 

Making withdrawals or borrowing for a home from tax-deferred savings makes it easier to divert that money from its original purpose: compounding growth for your retirement through investing in the stock and bond markets. In exchange, you could say you are diverting some of your retirement money into real estate.

 

Given the growing dissatisfaction with their lot in life, younger generations might prefer the ability to own a home, start a family, and get out from under their parent's spare bedrooms or basements, worth the cost of a little less in retirement savings.

 

That may not be a bad thing. Over half of Americans' wealth today is attributed to their real estate holdings, namely their home. Diversifying one's investments is rarely a bad idea. If the rules were relaxed, and let's say two million Americans borrowed $100,000 each for a home, those transactions would have a substantial impact on U.S. economic growth as well. In turn, financial markets would rise, and the remaining funds in an existing 401(k) portfolio of stocks and bonds would also gain.

 

Kevin Warsh, formerly of the Federal Reserve, was chosen to lead the U.S. central bank in May. At around the same time, U.S. forces gathered in the Middle East, as the president again threatened Iran. Together, these developments triggered traders to adopt a risk-off stance.

 

At first glance, it appears that market participants believe Warsh is less willing to ease monetary policy if it would raise inflation. Consequently, currency traders bought the dollar and sold precious metals. Meanwhile, increased tensions in the Middle East also pushed the dollar higher and boosted oil prices.

 

Amid these market shifts, the Fed met this week, but the event was largely a nothing burger. The Fed is on pause, as the market expected, and will likely remain so until Kevin Warsh is appointed in mid-May. Now that the Federal Open Market Committee meeting is over, investors' attention will be focused on the fourth-quarter 2025 earnings results. Thus far, more than 78 percent of companies have beaten earnings estimates as usual.

 

By now, readers know the game Wall Street plays. Analysts deliberately lower their earnings estimates, allowing the companies they follow to beat expectations. This week, however, the big guys reported. Meta skyrocketed on their results, while Microsoft and Tesla cratered on theirs. Apple, despite stellar earnings, was dumped as well.

 

The AI fears that companies are spending way too much and getting little in the way of returns for their effort was underscored by Microsoft's disappointing earnings announcement. Once again, that event, along with news of a widening U.S. trade deficit, has cast a pall over the AI trade.

 

The U.S. Commerce Department announced that the nation's trade deficit for November 2025 was the largest in almost 34 years. The trade gap increased by 94.6 percent to $56.8 billion, well above expectations of below $30 billion. The culprit was a surge in capital goods imports driven by investments in artificial intelligence. That is not what the administration wants to see.

 

And speaking of the administration, this week the president rattled his saber once again, threatening military action unless Iran renounced its nuclear development. He also said the declining U.S. dollar was "doing great" and did not think the dollar had declined too much.

 

The prices of most commodities and oil spiked higher on his comments, as traders realized that not only was he comfortable with the decline, but that further downside was highly probable. As a result, the dollar fell 1.3 percent on Tuesday, while gold and other precious metals spiked higher. Since then, that trade has reversed on the news of the Kevin Walsh appointment.

 

From a global perspective, the current parabolic surge in commodity prices was driven by a systemic external drain on U.S. dollar-denominated assets. Foreign nations are aggressively liquidating U.S. Treasuries and moving away from the dollar toward gold, silver, and other commodities. It is one of the main reasons I remain bullish on precious metals, oil, and other commodities as the year progresses.

 

As the dollar weakens, we can expect to see global investors seek out a replacement, a store of value that will protect their wealth. Gold, silver, platinum, palladium, and now copper have fulfilled that role thus far. But wait, you might ask, didn't I just advise readers to sell some of those metals last week?

 

Yes, I did. It is a timing thing. Most precious metals have risen too rapidly; one might describe the move as parabolic, so I recommended taking profits on some investments. At the same time, hold some positions in case prices rise further. They did until Friday. Since there is no way to tell when or even if this parabolic move has peaked, I booked some gains. The declines on Friday show the wisdom of my advice. In just a matter of hours gold dropped by 7 percent-plus, silver fell by 21 percent, platinum dropped by 16 percent, and palladium declined by more than 13 percent.

 

In the blink of an eye, we could easily see a 30 percent decline in this space, and it could happen, as it did on Thursday night, while you are sleeping in bed. That is the nature of the beast. At some point, when I think the metals have fallen enough, I will advise you to reinvest those profits back into precious metals.

 

In the meantime, I suggested readers accumulate copper (through an exchange-traded fund) and copper mining stocks. At one point this week, Chinese investors (while you were sleeping) bid up the price of copper to $14,500 ton, an 11 percent increase, the highest price ever recorded. Thursday morning, prices in the U.S. rose by more than $1,400 a ton, only to slide by $1,000 in less than half an hour. By Friday, copper had joined the metals rout, falling 4.28 percent.

 

The moral of this tale is that you do not bet the farm when investing in commodities, or you won't have any farm left to bet. As for equity markets, the last week of January saw profit-taking, though the month was positive overall as measured by the S&P 500 Index. The Russell 2000 small-cap index outperformed, while the tech-heavy NASDAQ also rose. But not all is what it seems. If one had been invested in commodities, metals and mining, capital goods, aerospace and defense, energy , basic materials, and/or retail, one did far better even with the end-of-the-month sell-off.