Can AI Alone Power Markets?

In our client meetings, I've noticed one theme that keeps coming up.

Markets are hitting new highs, but the world doesn't exactly feel calm.

In the second quarter of the year, artificial intelligence (AI) connected semiconductor stocks were responsible for a significant share of market returns.

But even as markets push toward new highs, the story goes far beyond AI.

Big tech concentration and record debt levels are two of the risks that don't make headlines but deserve attention.

In this newsletter and related video, I walk through what I'm seeing in the markets from this past quarter. This format is replacing the quarterly webinars we hosted previously.

The video slides are only 15 minutes and I think you will walk away with something useful. If there is anything you’d like to discuss in more detail, I am happy to do so.

Click the play button below or click HERE to tune in.

If you prefer to read or simply don't have the time for the full version, here are the key takeaways:

1.) The rally is finally broadening beyond a handful of big tech names. That's a healthy sign. If AI really is transformative, we should see the benefits spread throughout the economy, not just show up in a few stocks.

2.) Most of the AI earnings so far are coming from the chip makers. The real question is if hyperscalers like Amazon, will keep spending enough on AI infrastructure to justify the high expectations built into these stock prices.

3.) Some of this rally has been fueled by investors borrowing money to buy stocks. That's worth watching. Borrowed money amplifies gains on the way up and losses on the way down.

4.) Keep some reserves on the sidelines. We call it “dry powder.” This isn't a signal to sell. It's about being ready to take advantage if we get a pullback.

5.) Value stocks, dividend payers and international exposure look attractive in this environment. These are the areas where we see opportunity outside of the big tech names (and a significant part of our Fortress Financial Plan approach).

6.) On the bond side, we like a mix of inflation-protected bonds (TIPS) alongside short and intermediate term Treasuries. This gives you both protection against inflation and stable income.

As Warren Buffett famously said, "Be fearful when others are greedy, and greedy when others are fearful."

Most importantly, make sure you have a strategy for when the markets are high and when they are low.

Given what has happened over the past couple of years, the next crisis is likely just around the corner.

There is never a need to panic. But you do need to have a plan in place.