AI Exuberance | Trade and Tariffs | The Fed | Consumer Resilience | The Evolving Media Landscape | Stories of Note
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| Investing requires an optimistic vision that sets aside partiality to assess what the probable future holds. For those who climbed the mountain of uncertainties during the tariff war to identify value among the wreckage, 2025 has been a very profitable year [Image ©kieferpix/ Adobe Stock. Modified for The Ignorant Investor: www.theignorantinvestor.com] |
Just look at the S&P 500 above 6,700 and the Nasdaq above 23,000! And wait- the Russell 2000 is also at all-time highs as it nears the 2,500 mark. Very few analysts (none that The Ignorant Investor can recall) predicted this just six short months ago. Then there was talk about how a quick recovery was unlikely. But to be fair, it is hard to forecast events which depend primarily on powerful people’s decisions. Thankfully, following the fierce pullback in April and the following V-shaped recovery, we are now sitting at all-time highs for the US equity market.
2025 has proved uniquely challenging for investors. Unknowable implications from shifting US tariff policies, lingering uncertainties about inflation and the financial health of the US consumer, and the single constant of staggering amounts of money being thrown at anything AI-related creates a dizzying investment backdrop. And the questions really don’t end. Will the Supreme Court determine that the current tariff policy is legal? How will the Fed balance its responsibilities as job market challenges increase while inflation threats remain elevated? And aren’t stock market valuations very stretched even as outperformance remains concentrated in AI names?
Step back for a minute. Look around at the real world around us. The Ignorant Investor can appreciate brilliant rays of sunshine through the windows, the sound of bustling city traffic, the firm texture of hardwood flooring beneath his feat, and the fresh scent of spaghetti and baked garlic bread filling the air. This world really is a beautiful place. And yes, the markets have been incredibly turbulent in recent months, yet Warren Buffet’s famous adage held true yet again: “Be fearful when others are greedy, and greedy when others are fearful”. But has the pendulum now begun to swing too far to the other side? Let’s briefly unpack the drivers affecting the current investment environment and before moving on to other topics.
AI Exuberance
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| Hundreds of billions of dollars in AI-related investment projects have been announced this year [Original image ©miss irine/ Adobe Stock. Modified for The Ignorant Investor: www.theignorantinvestor.com]. |
There is a seemingly endless supply of investment dollars ready to flow into everything AI. An enthusiasm which extends from the lowly New York startup scene all the way up the food chain to Silicon Valley tech giants like Meta, where Zuckerberg recently mentioned he’d rather misspend a “couple of hundred billion dollars” to then get left behind in the AI race. There also is a seemingly endless line of traditional businesses that can be disrupted by AI- with some software companies (SaaS, specifically) taking a big hit in recent weeks as Open AI entered the fray with new tools that will directly compete with them.
But what has given The Ignorant Investor pause this last month has been, well, the interlocking nature of some of these eye-watering AI investments. For example, Nvidia acts as both chip supplier to and investor in both Open AI and CoreWeave. Meanwhile, Open AI is a customer of and investor in CoreWeave (original deal worth about $10B). And Nvidia is committed to progressively invest up to $100B in Open AI to help build out datacenters, while Oracle (which skyrocketed higher last month on massive future revenue projections) will buy chips from Nvidia and use them as it builds infrastructure for Open AI (deal worth about $40B). Here it must be said that Open AI’s new partnership with AMD alleviates some “circular” investment concerns. Still, at what point do these interlocking arrangements potentially lead to fiduciary issues or increased investment risk?
Meta cited a fear of missing out as a basis for at least some portion of its massive spending. Every week we hear of some new tens or hundreds of billions of dollars in AI-spending going to this or that company over the next decade. Valuations are sky-high, but many AI-related and AI-adjacent companies have not yet reached profitability (and may never reach profitability). Perhaps we are reaching a point where investor exuberance may be becoming, well, irrational? The Ignorant Investor is treading cautiously in this space, avoiding speculative names and sticking with companies that have real products and quality customers.
Trade And Tariff Policy Uncertainty
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| The integrated, global economic order has endured some challenging months [Image ©main_asn/ Adobe Stock. Modified for The Ignorant Investor: www.theignorantinvestor.com]. |
The Ignorant Investor was surprised by the breadth of tariffs announced for “Liberation Day” in April. Yet, in the months since, we haven’t seen the doomsday scenario many economists anticipated. Inflation remains relatively benign, treasury income has boomed (thanks to tariffs), and the most recent flood of earnings data showed that even retail companies have been able to mitigate much of the damage. We appear to be in a goldilocks scenario where we see limited impact if trade disruptions stabilize soon. Thankfully, China and the US appear to be close to reaching a trade deal. Yet US sanctions on Russian trade partners (let’s highlight India for example), enforced through tariffs, appears to throw some unpredictability into the longevity of potential deals. And legal challenges to existing tariff policies will also soon be decided by the Supreme Court. Plenty of jargon and “what if” scenarios here, to be sure, but what is certain is that companies with strong balance sheets and businesses that aren’t largely dependent on overseas trade are better insulated against potential tariff surprises.
The Fed: Inflation, and Politics
The Fed has cautiously approached the idea of lowering interest rates, with Powell announcing a quarter-point cut last month, with up to two more rate cuts later this year. The central bank made this move in the face of mixed economic data that shows weakening employment coupled with elevated inflation. And the elected government continues to publicly pressure the Fed to cut rates even further.
Very dry stuff, to be sure, but let’s talk about that for a minute. The US legislature has a serious problem. The US government spends far more money than it makes from tax collections each year (ie spends money it doesn’t have). Both sides of Congress always kick that can down the road by passing laws that allow the government to borrow even more money. And this increasingly staggering pile of debt needs to be serviced (interest paid for) each year by the American public. The Fed can save the Federal government money by lowering interest rates. But the Fed’s mandate is to maximize employment while minimizing inflation. Lowering interest rates at the whim of the Federal government could blow up that mandate by eventually allowing inflation to run rampant. Turkey serves as a great cautionary tale about how a dependent central bank can lead to catastrophe. Investors are watching this situation closely.
US Consumer Resilience
US consumers have shown resilience against a backdrop of elevated inflation and a weakening job market (ADP data showed job losses for September- a suitable proxy reading while we wait on the official jobs report due to the government shutdown). Unfortunately, this resilience has been slightly weakening in 2025. Digging deeper, the average US consumer is currently experiencing one of two very different worlds. On one side, there is a group enjoying the convenience of DoorDashing meals, shopping extensively online, and traveling the world. These people are not necessarily affluent; they likely work in an industry that is booming and are getting an extra boost from their stock market (or crypto?) investments. On the other side, consumers are cautious of a weakening labor market and cutting back on expenses. They are eating out less, trading down to cheaper brands at the grocery store, and delaying costly home renovation projects. For now, the US consumer remains resilient, but some cracks are emerging below the surface as various industries experience structural change and others explosive growth.
The Evolving Media Landscape
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| The way people consume media has changed. Now the media industry is also changing [Image ©Gorodenkoff/ Adobe Stock. Modified for The Ignorant Investor: www.theignorantinvestor.com]. |
We know he certainly wants to make the first move, but will he do it this time? We’re not talking about a dating show, but rather David Ellison’s (*cough* Paramount’s) highly anticipated pursuit of and upcoming bid for Warner Brothers. Will Netflix join the fray? What will happen now with Comcast? After all, the way people consume media has changed, and the companies providing that media must adapt. The collapse of traditional cable networks and the reimagining of media companies have been a focus of The Ignorant Investor since perhaps late 2022 (always searching for diamonds in the rough!).
There are huge opportunities here for those with the capital and vision to craft a media giant with an eye to the future. Recent trends show that younger demographics are growing increasingly dependent on online media (and on-demand media) as a normal part of daily life. The structural implications from this evolution affect everything from local news to sports, from television shows to storied movie studios. As far as news goes, nearly half of all under 34-year-olds say they never use cable TV news, while a similar percentage use social media as a credible news source.
Let's follow that rabbit trail for a minute (warning: only opinion, not fact, up ahead!). Traditional news was expected to provide viewers with a balanced, general awareness of the surrounding world. It helped enrich and challenge us as we formed our worldview, our opinions, and our perspectives. Traditionally, this was expected to be curated for accuracy with limited bias or personal agenda (granted, there has always been room for improvement in this area). The Ignorant Investor wonders whether, as news becomes more crowdsourced (from social media newsfeeds and podcasters) and on-demand, we all may begin to form echo-chambers of personal opinions that reflect our existing personal views.
Stories of Note
The Hottest New Financial Advisor on the Street
No, that isn’t a pop-up ad, nor does it refer to Wall Street. In recent weeks, the story has been making the rounds that more people are now using Chat GPT to help them pick stocks and form investment strategies. The cost is basically free, and the chatbot can quickly pull up and present financial data in a way the average retail investor could only dream about even a few short years ago. Of course, the potential downsides are also significant, since the AI doesn’t understand a user’s personalized financial situation and sometimes generates inaccurate commentary. For now, The Ignorant Investor continues to strongly recommend consulting with a human financial advisor before crafting an investment strategy- but coming soon, an AI assistant or agent may be able to offer a credible low-cost alternative.
Read the real stories of some young people who are using Chat GPT to help with their investment decisions at Vice.
Read the real stories of some young people who are using Chat GPT to help with their investment decisions at Vice.
GLP-1s Curb the Munchies
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| People are starting to say no to alcohol, potato chips, and junk food [Image ©Pixel-Shot/ Adobe Stock. Modified for The Ignorant Investor: www.theignorantinvestor.com]. |
Occasionally, something comes up out of the blue and changes everything. Think of a meteor showing up while some dinosaurs eat breakfast under a blue sky. Or the Berlin Wall suddenly coming down in the waning years of what we now call the Cold War. Change is inevitable, and people and businesses must constantly evolve in response or risk being left behind. The rise of GLP-1s has been a phenomenal blessing for overweight Americans- a pill that can reliably help people lose weight? Why not? But an even bigger impact may be healthier living as patients see fewer cravings for bags of unhealthy junk food. This is nothing less than a huge win for society writ large, but GLP-1s are now a staple conversation point in earnings calls, and companies are starting to respond with healthier-appearing packaging and sometimes new (marketed-as-healthier) products. In any case, The Ignorant Investor found this story interesting enough to follow from a distance.
Read more about the effect of GLP-1s on observed consumer behavior in the era of higher tariffs in this article published by Forbes.
All hail Nvidia – but what about diversification?
Let’s look under the hood. The investment mantra for years has been that diversification is good. It helps market participants partake in broad rallies while protecting them from the higher risk (and reward) that accompanies ownership of individual stocks. And how many investment managers have been able to beat the S&P 500’s outperformance in recent years? The answer is very few. Yet in the era of Nvidia and trillion-dollar-plus companies, the top eight S&P 500 companies are situated around technology and carry a combined market capitalization that makes up around 35% of the S&P 500 itself (personally checked as of September). This means the index is quite closely linked with technology’s performance, and specifically AI-related outcomes. Upside can be found if AI adoption proves to be as transformative as the Industrial Revolution. Downside could be seen, for example, if companies are building out AI infrastructure too heavily and end up exceeding demand (unlikely, but hey, let’s throw that grey swan in there!). As investors, it’s important to look at what we own, know why we own it, and stay in close consultation with our investment advisor!
The "Brainiac" Dilemma
AI chatbots are getting smart. The Ignorant Investor occasionally tests Chat GPT with advanced questions regarding the stock market, and recent responses have become impressively accurate. Other users continue to experiment with AI in tasks like professional and creative writing for their LinkedIn profile. Still others use it to bolster their online dating conversations (although this does feel a bit disingenuous). But what happens when this increasingly useful AI gets put to nefarious purposes? We’re not talking about a chatbot writing graduate thesis papers, or mass submissions – aided by AI – overwhelming academic publishing. We’re talking about the potential for industrial-level fraud facing financial institutions as AI learns to bypass security measures. Chatbot guardrails are being put in place but now may be a good time to create some deep fake safe words that you only share with your friends, family, and financial institutions.
Traditional scams are getting smarter too. Read about how easy it is for phishing scams to be created and weaponized using the help of ordinary AI chatbots in this study by Reuters.
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*The Ignorant Investor began a draft post in March, edited and expanded it in late April, and finally threw out the whole thing and began again earlier this month. The amount of action in 2025 has been incredible and taken a considerable amount of focus. Thankfully, things appear to be ending the year on a positive (if highly valued) note.
