Hello. This is Keith Lerner with the latest monthly market update. And I wanna do something a little bit different this month. It's gonna be a bit more focused, and the topic is around AI, which is the number one question that I'm getting as I'm meeting with you and talking to our advisors. So the big picture is this. We're going through a big shift, a big technology shift. And historically, when we've seen this, there tends to be two sides of this. One side is this tends to be a lot of enthusiasm, and the other side is it tends to be anxiety. And I would really say before this year, over the last couple of years, especially in the stock market, there was a lot of excitement. In fact, if you remember last year, there's lot of questions. Are we in a technology bubble? There was a lot of enthusiasm that was being priced into the market. And now quickly, the market has started to show more anxiety. And part of that is because we've seen more, you know, newsletters and different publications discussing you know, more of a potential bleak or downside scenario in AI where it becomes so productive that it displaces workers, which eventually, you know, hurts the overall economy. So let me now kind of pivot to a little bit of a of a history lesson. You know, got into this business in the nineties, and at that time, there was a lot of excitement around the Internet, but also anxiety around, you know, displacement as well. In fact, there's a lot of questions were were around where do a lot of these brick and mortar stores close. And as I think back, there were some really big companies, think about Blockbuster or Toys R Us, which actually was disrupted, you know. But there were also new winners that we didn't know at the time, which won for Blockbuster, the the winner became Netflix. And then if you think about, like, Poison Russ, we Amazon was a was a big winner. In fact, today, is the second largest, private employee in the United States as well. The really, for me, what this reminds me is that technology creates disruption, but also winners. And in real time, it's it's more easy to see which companies are gonna be disrupted, and it's hard to see which are gonna be some of these, you know, new new winners, as far as industries of of the future. And on that point, there's also an interesting article, just that recently was published by the Dallas Fed, and what they really talked about is this kind of distinguishing factor between things that could be automated where jobs would be displaced and and then, augment augmentation, meaning where AI can really help workers become more productive and focus on higher value goods. So, that's another area where there's gonna be winners and losers. And as you're thinking about more from an investment perspective, I would also say, you know, historically, if you, you know, if you focus on the worst case scenario, you'll never be invested. And, you know, I I also just think more recently about the the COVID period. Like, let's say that I told you that ahead of time that there was gonna be this, you know, once in a generation pandemic where there were millions of people's lives that that or millions of people that that died, the economy was shut down, you know, many people would have taken that news or that information and went to cash and probably found happy for a month or two. But we also remember after COVID, we had one of the strongest market rebounds in history. And the lesson there isn't that there isn't risk. There is risk. But, also, it's, you know, it's it's hard to anticipate how investors, policymakers, and markets will adapt. Over time, markets and companies specifically have adapted as well. But, again, that doesn't mean there's not meaningful risk, but also opportunities as well. So I guess the next question or the third component of today's discussion is, so what? What does this mean from a portfolio standpoint? What can you do? Well, the first thing is to make sure you're talking to your adviser. But from a broad based perspective, you know, the first thing is going back to the basics. Diversification is is working again, as you're seeing, you know, more winners and losers. Secondly, the investment playbook is different from the past decade, meaning this is no longer a narrow one trade market. And thirdly, broader exposure matters. So as we're seeing this leadership expand beyond mega caps, we're thinking seeing things like small caps, mid caps, international markets do well. And we're also seeing that because profit trends are improving. At the same time, on the sector side, we're seeing areas that actually help with the building of AI. I think these things things like industrials benefiting from the build out or things like we need interest in things like energy and materials, which are also needed for part of this buildup as well. And as as as also where, you know, investors look for pure or areas in which we may which may be less disrupted from AI. And then from more of a asset allocation perspective, I think a positive we're seeing so far this year is fixed income is acting like fixed income providing that diversification when the market is being a bit more volatile and still providing that balance as far as income. So to wrap up, you know, this AI disruption is real. It's happening quickly. There will be meaningful winners and meaningful, opportunities. No one can predict exactly where this is going to go. From our perspective, what we what we what we will continue to do is follow that weight of the evidence, have a disciplined approach, try to filter out some of the noise, and as the evidence shifts, we'll make adjustments. So with that, we'll end today's market recap and look forward to speaking to you next month.
Model : "disclaimer"
Position : "left"
Hello, this is Keith Lerner with the latest monthly market update. I'm going to do something a little bit different this month. It's going to be a bit more focused. And the topic is around AI, which is the number one question that I'm getting as I'm meeting with you and talking to our advisors. So the big picture is this we're going through a big shift, a big technology shift. And historically when we've seen this. There tends to be two sides of this. One side is there tends to be a lot of enthusiasm and the other side is there tends to be anxiety. And I would really say before this year, over the last couple of years, especially in the stock market, there was a lot of excitement. In fact, if you remember last year, there's a lot of questions. Are we in a technology bubble? There was a lot of enthusiasm that was being priced into the market. And now quickly the market has started to show more anxiety. And part of that is because we've seen more, you know, newsletters in different publications discussing yet more of a potential bleak or downside scenario in AI, where it becomes so productive that it displaces workers, which eventually, you know, hurts the overall economy. So let me now kind of pivot to a little bit of a history lesson. You know, I got into this business in the 90s, and at that time there was a lot of excitement around the internet, but also anxiety around, you know, displacement as well. In fact, there's a lot of questions... were around, where do a lot of these brick and mortar stores close? And as I think back, there were some really big companies think about Blockbuster or Toys R us, which actually were disrupted, you know, but there were also new winners that we didn't know at the time which one for Blockbuster, the winner became Netflix. And then if you think about like Toys R us, Amazon was a big winner in fact, today Amazon is the second largest private employer in the United States as well. Really for me what this reminds me is that technology creates disruption but also winners. And in real time it's it's more easy to see which companies are going to be disrupted. And it's hard to see which are going to be some of these, you know, new, new winners. Or as far as industries of the future. And on that point, there was also an interesting article, just that recently was published by the Dallas Fed. And what they really talked about is this kind of distinguishing factor between things that could be automated, where jobs would be displaced and, and then, augmented augmentation, meaning where AI can really help workers become more productive and focus on higher value goods. So again, that's another area where there's going to be winners and losers. And as you're thinking about more from an investment perspective, I would also say, you know, historically, if you, you know, if you focus on the worst case scenario, you'll never be invested. And, you know, I also just think more recently about the Covid period, like, let's saythat I told you that ahead of time that there was going to be this, you know, once in a generation pandemic where there were millions of people's lives that... that... or millions of people that died, the economy was shut down. You know, many people were just taking that news or that information and went to cash and probably felt happy for a month or two. But you also remember that after Covid, we had one of the strongest market rebounds in history. And the lesson there isn’t that there isn’t risk, there is risk but also it's you know, it's it's hard to anticipate how investors, policymakers and markets will adapt. Over time markets and companies specifically have adapted as well. But again, that doesn't mean there's not meaningful risk but also opportunities as well. So I guess the next question or the third component of today's discussion is... so what? What does this mean from a portfolio standpoint? What can you do? Well, the first thing is to make sureyou talking to your advisor. But from a broad based perspective, you know, the first thing is going back to the basics. Diversification is working again, especially as you're seeing, you know, more winners and losers. Secondly, the investment playbook is different from the past decade, meaning this is no longer a narrow one trade market. And thirdly, broader exposure matters. So as we're seeing this leadership expand beyond mega-caps, we're seeing things like small-caps, mid-caps, international markets do well. I'm also seeing that because profit trends are improving. At the same time, on the sector side, we're seeing areas that actually help with the building of AI, Think things like industrials, benefiting from the build out or things like renewed interest in things like energy and materials, which are also needed for part of this build up, as well as as, as also where, you know, investors look for period, areas which we maywhich may be less disrupted from AI, and then from more of an asset allocation perspective, I think a positive we're seeing so far this year, fixed income is acting like fixed income, provided that diversification when the market is being a bit more volatile and still providing that ballast as far as income. So to wrap up, you know, this AI disruption is real. It's happening quickly. There will be meaningful winners and meaningful, opportunities. No one can predict exactly where this is going to go from our perspective, but what we will continue to do is follow that weight of the evidence, have a disciplined approach, try to filter out some of the noise, and as the evidence shifts, we'll make adjustments. So with that, we’ll end today's market recap and look forward to speaking to you next month.
Key takeaways
- Markets remain resilient, even as AI disruption and policy uncertainty contribute to a widening gap between winners and losers.
- This is no longer a one trade market. Leadership is broadening as rotation replaces concentration, and the dynamics that worked over the past decade are becoming less reliable.
- Diversification is back in focus, supported by broader equity participation and fixed income acting as a consistent counterbalance.
A fast-moving narrative shift
The carousel of concerns is spinning at full speed. As has been typical this cycle, the market narrative has shifted abruptly. After much of 2025 was defined by enthusiasm, and at times excess, around artificial intelligence (AI), the focus has swung toward disruption. Investors are increasingly asking which business models may be vulnerable, starting with software but extending well beyond it.
Every major technological shift brings both excitement and anxiety. What makes this one different is the pace. AI is advancing faster than prior major technologies, pushing markets almost 180 degrees, from worrying about an AI bubble to worrying about displacement. Historically, however, periods of creative destruction make it far easier to identify potential losers than to recognize, in real time, the new companies, industries, and opportunities that ultimately emerge.
Putting AI fears in perspective
Layered on top of these concerns is a more existential fear that AI could meaningfully displace white collar jobs. Each day seems to bring a new viral doomsday article, often followed by a rebuttal or more nuanced take. The reality is that the future is always uncertain and if investors were consistently positioned for worst-case outcomes, they would never stay invested.
To put this in perspective, consider COVID. If investors had been told in advance about a global pandemic, millions of deaths, and an abrupt economic shutdown, moving entirely to cash would have seemed prudent. Yet after the shortest recession in history, markets staged one of the strongest rallies on record. The lesson is not that risks do not matter. It is that markets discount far more, and far faster, than we often appreciate.
Emerging research also suggests the AI narrative may be more balanced than the extremes imply. A recent Federal Reserve Bank of Dallas note highlighted that AI’s impact on labor depends on whether it automates tasks or augments them. Early evidence suggests it is doing both:
- In some cases, tasks are automated, and jobs are eliminated.
- In others, AI removes routine work, allowing companies and workers to focus on higher value activities, improving productivity and wages.
In practice, the same innovation can be both disruptive and additive, depending on how it is applied.
Policy noise amid a volatile backdrop
Against this backdrop, investors also faced renewed policy and geopolitical uncertainty. A recent Supreme Court ruling struck down parts of the administration’s tariff framework, prompting a shift to alternative measures. The net effect appears modest, with effective tariffs now slightly lower than before the ruling.
That said, we do not see this as a game changer. Unlike the tariff shocks of 2025, companies have had time to adjust, supply chains are more resilient, and markets appear less prone to reflexive reactions.
Geopolitical tensions resurfaced late in the month following a joint U.S.–Israel strike on Iran. Historically, similar events – from prior strikes on Iran to the capture of Venezuela’s Maduro – have had only short-lived market impacts, though this episode warrants closer attention, particularly through the lens of oil prices. Together, these factors point to elevated volatility, consistent with a midterm election year.
So, what are investors to do?
Periods like this bring us back to the basics of diversification.
For years, many investors asked a reasonable question: why own anything other than the S&P 500? Why own small caps, international stocks, non-tech sectors, or even bonds? The answer is becoming clearer in today’s market.
As we discussed in our annual outlook, we expected broader participation, and that is what we are seeing, supported by a broadening earnings backdrop.
A wider opportunity set
While we remain constructive on U.S. large caps, the opportunity set has widened meaningfully. The recent Middle East flare up also reinforces the need for portfolio diversification and is consistent with our up-in-quality preference within fixed income.
- Over the past year and a half, we have been increasing our outlook on international markets. We upgraded emerging markets to neutral in January following an important technical breakout and improving earnings trends.
- International developed markets have also moved to record highs after breaking above long-term resistance. This is another sign that the bull market has become increasingly global.
- Small- and mid-cap stocks have been outperforming as investors anticipate an economic uptick.
- Sector leadership has broadened, with areas perceived as less vulnerable to AI disruption, or more leveraged to economic growth, showing relative strength. Consistent with this backdrop, we upgraded cyclicals in December.
- In regard to technology, we continue to give the sector the benefit of the doubt while closely monitoring earnings and price trends. Forward price-to-earnings (P/E) multiples have declined by more than 20%, and technology now trades at its lowest premium to the broader market since 2000.
- On the fixed income side, bonds have behaved much like the “consistent hitter” we discussed in our annual outlook, providing diversification during equity pullbacks. With pockets of stress emerging in software and parts of the private capital market, we continue to emphasize quality, particularly given how little incremental yield investors receive for reaching down the credit spectrum.
- Longer term, we still view gold as a valuable portfolio diversifier, supported by central bank buying and ongoing geopolitical risks, including tensions involving Iran. However, after a significant run, we downgraded gold to neutral in January near the highs.
AI presents meaningful risks and meaningful opportunities; if investors position only for worst-case scenarios, they will never remain invested through cycles or participate in long-term growth.
Bottom line
AI disruption is real and moving quickly. It creates meaningful risks, but also meaningful opportunities. From a positioning standpoint, this environment argues for going back to the basics – diversification is working again. We will continue to follow the weight of the evidence, remain disciplined in our process, and adjust positioning as that evidence evolves.
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