| Home | About | Archives | RSS Feed |
@theMarket: No Valentine for Artificial Intelligence
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.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: AI Trade Came Home to Roost
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.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: New Fed Head, Iran Threats Trigger Some Profit-taking
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.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: Headline noise equals opportunity
A Greenland invasion, the end of NATO, another tariff war, Iranian riots, threats, and counterthreats. This week saw it all. It could have been the end of the world, but it wasn’t. Savvy investors took advantage of the noise.
Talk about TACO (Trump always chickens out)! This week exemplified Trumpian scare tactics. It is remarkable how many investors were influenced, not recognizing this as another page from Trump’s novel, “The Art of the Deal.”
In any case, the ruffled feathers on both sides of the Atlantic after the president’s threat to take over Greenland or else were resolved in short order. The World Economic Summit in Davos set the stage for Trump's speech.
Behind the bluster and bravado, and the back-room negotiations, was the real issue—strategic security. Shipping lanes, undersea infrastructure, defense positioning, and more are real concerns for the U.S. and Europe regarding Greenland and the Arctic.
I call it Gunship Diplomacy mixed with a heavy dose of the new 'Donroe Doctrine’. It is all part of my thesis that Donald Trump is following in the footsteps of presidents like Jefferson, Madison, Monroe, Andrew Johnson, William Howard Taft, Harry Truman, and others who expanded America’s reach for its own gains and strategic interests either by threats or force.
The world is getting smaller, and Greenland and the Arctic, once a remote region, are in reality right next door to China, North Korea, and Russia. Those nations are attempting to expand their presence in the area, as they are in other areas of our hemisphere. It is the reason behind Donald Trump's strategy for the Golden Dome missile defense system. Like Ronald Reagan’s Star Wars initiative, the Golden Dome is all about nuclear missile attacks. It would detect and destroy ballistic, hypersonic, and cruise missiles before they launch or during their flight.
The media focused on Trump’s words rather than the substance of the issue, continuing their typical approach. Trump’s rhetoric often inflames situations, a pattern that is now recognizable.
In any case, all one had to do was look at how the rest of the world reacted. Markets in China, South Korea, and even Denmark did not fall for the noise. The panic selling was uniquely American. It was a great opportunity to buy the dip.
As for the fundamentals, the economy was still expanding in the third quarter of last year, rising at a 4.4 percent pace, slightly higher than the government’s initial estimate. In addition, personal spending rose 0.5 percent in November 2025 versus October. The Personal Consumption Expenditures Index (PCE) for November rose 0.2 percent, the same as in October, which was in line with estimates. All of which implies that inflation is in check, the economy continues to grow, and labor is showing slight moderation, with little hiring or firing.
Earnings season, in typical fashion, is turning out to be a little better than expected, with 78 percent of companies reporting beating estimates. Equities overall are still exhibiting bullish tendencies. This week’s geopolitical tape bomb was met with buying, and market breadth remains resilient. The rotation trade is still working, but the tech sector and growth stocks in general are beginning to signal oversold readings. We could see a bounce in the Mag 7 group if earnings and guidance come in better than expected next week.
The precious metals complex, especially silver, is approaching bubble territory. Typically, in equity markets, tops are processes while bottoms are events (usually due to policy intervention). Conversely, in gold, silver, platinum, etc., bottoms are a process, and tops are an event.
FOMO is white hot in the silver market, driven by the belief that the metal is in short supply, and the U.S. government has deemed it a critical metal. In the case of gold, central banks and many foreign nations are beginning to use gold to settle trade outside of the U.S. Treasury and petrodollar systems. While still bullish on all precious metals, I would not chase them here. If you own them and the miners, I would lighten up here. That does not mean selling out of your positions. Just bank some profits and possibly buy back at lower prices.
However, in the case of copper, I would see any weakness in price as an opportunity to add. In addition, I still think emerging markets, especially China’s A shares, the Shenzhen and STAR markets, have more room to run this year despite their stellar performance in 2025. As for this weekend, stay warm.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
@theMarket: Markets Churn As Trump Roars
It was a week where the White House provided a steady stream of "what ifs." Iran, Greenland, credit card caps, Fed subpoenas, and aid for home buyers were just some of the topics floated. Take it all with a grain of salt.
The overall market indexes traded in a tight range, but by the end of the week, they continued to edge higher. If you were invested in cyclical areas, you did far better than that. As I have pointed out in my last few columns, a rotation away from the concentrated group of tech stocks is well underway into cyclical areas like materials, industrials, health care, consumer discretionary, and small-cap stocks.
I think that will continue as tax cuts, increased government spending, and a reduction in tariffs take hold in the economy. Remember, this is an election year, and as such, the administration is determined to short-circuit the "affordability" issue because it has played so well in GOP election defeats in recent years.
Some examples include the president's desire to cap credit card interest rates at 10 percent for one year, which would require congressional approval. Top Republicans are already resisting such a move. However, it did not stop traders from trashing a whole host of financial stocks on this "what if" scenario.
Trump also wants to reduce rising electricity prices by opening a bidding war for tech companies to fund new power plants, and he also proposed "the great health-care plan," which he claims will lower drug prices, increase transparency, and redirect federal subsidies to consumers.
On the housing front, the president wants to spend $200 billion or more in buying mortgage bonds through Fannie Mae and Freddie Mac, the two government-controlled mortgage agencies. The president hopes the move will reduce housing costs by lowering mortgage interest rates.
Speaking of interest rates, the DOJ Fed subpoena announcement was meant to put pressure on Chair Jerome Powell to vacate the office sooner rather than later. The rather uncharacteristic response from the beleaguered central bank chairman on social media prompted the White House to backpedal on that move almost immediately.
Trump also said that he wants to bar Wall Street financial institutions from buying single-family homes. Professional house flippers are believed to have artificially inflated housing prices in many communities. It is not clear to me if that would have a big impact on the housing market, but one can hope. In any case, housing stocks took off after Trump's social media post.
And while these trial balloons are floating out of the Oval Office windows, Trump's gunship diplomacy is forging full steam ahead. Venezuela was last week's story, largely replaced by threats of military action in both Iran and Greenland. While equity and bond markets took this saber-rattling in stride, the precious metals and oil markets spiked higher as the fear factor of geopolitical turmoil took hold.
To me, Trump's escapades overseas are part of the mercantilist tone of his administration. For those who missed my December 2024 column "Is mercantilism the answer to our trade imbalance," I suggest you read it. It begins with:
"For those few of us familiar with the term, mercantilism was the dominant economic system in Europe from the 16th to the 18th centuries. It was a world where it was believed that global wealth was fixed and finite. To become powerful, a nation needed to acquire as much wealth as possible. Back then, a nation's wealth was measured by how much gold and silver it accumulated."
Certainly, in mercantilist terms, the controversy over strategic metals fits the bill as does oil in the case of Venezuela and Iran when discussing wealth as fixed and finite.
Markets feel a bit tired to me. We still have not received a verdict on the tariff question, but at the end of the week, I noticed some overdue profit-taking in the mines and metals sector.
The threat of additional tariffs on metals may have fueled some of the recent gains in that space. A negative ruling by the Supreme Court might create further volatility in that area and in other cyclical sectors that have benefited most from the rotation we have seen over the last two weeks.
I would not chase equities here. Instead, there may be a buying opportunity if we pull back in areas such as small-cap stocks, industrials, and miners of gold, silver, copper, platinum, and palladium. Emerging markets are also hitting new highs. China may be worth a fresh look as well.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
