From steam to silicon: Disruption creates volatility and opportunity

So, the struggle continues.

Investors, traders, and the algos are still trying to handicap the AI bet — and it sent stocks on yet another roller coaster ride. The VIX surged 10% at the open, triggering the usual reflex: stocks trade lower, anxiety spikes, and suddenly it’s “here we go again.” And then the VIX settled down causing the sell off to come to a screeching halt. But that’s the environment we’re in right now — hypersensitive, headline-driven, and quick to react.

What’s clear is this: the turmoil isn’t just disrupting sectors — it’s disrupting the investor psyche. Every headline feels existential. Every product release feels like a different pink slip. Every capex number that investors celebrated last year, suddenly feels like a ton of bricks this year – what was excitement is now panic.

But here’s the bottom line – so get used to it - AI is going to disrupt the status quo. It is no longer a question of can it work – it clearly can - We have already seen it….. The question is how fast it is going to happen, what does it do to profitability, and who will be the winners.

And guess what? Dumping entire segments of the economy simply because they’re perceived to be “at risk” is a bit dramatic. Disruption doesn’t always equal extinction. Adaptation has always been part of capitalism. And as usual - markets tend to overshoot in both directions. Volatility isn’t suggesting collapse — it’s suggesting a re-pricing and re-allocation of resources.

And that process is never smooth — trust me.

I lived through it after 9/11, when we were forced to confront the reality that the world had changed — and that U.S. & global capital markets would never be the same. Technology reshaped the very core of the industry.

How risk assets traded. Where they traded. Who traded them. The famed open outcry at the NYSE faded. The energy of 5,500 human beings screaming and yelling has been replaced by less than 150 people and the quiet hum of the computer… Electronic platforms took over. Speed replaced the institutional broker, Entire workflows disappeared. Yes — there were job losses. Yes — it was painful. Yes — it was disruptive.

But new jobs were created. New systems emerged. New leaders rose.

Go back and study the three prior industrial revolutions.

The First Industrial Revolution (1780–1850) — mechanization and steam power. It pulled labor off farms and into factories. It was disruptive. It was messy. It permanently altered society.

The Second Industrial Revolution (1880–1920) — electricity, steel, railroads, and mass production. Assembly lines replaced craftsmanship. Industrial titans rose. Entire regions were reshaped.

Then came the Third Industrial Revolution (1950–2010) — the Digital and Information Age. Semiconductors. Computers. The internet. Automation. Trading floors went electronic. News became instantaneous. Globalization accelerated.

Each one displaced workers. Each one created fear. Each one reallocated capital. And each one ultimately created more productivity, more opportunity, and new leadership.

And now we are living through the Fourth Industrial Revolution — AI, automation, and cyber-physical systems.

That’s how capitalism works. Disruption reallocates resources. It doesn’t simply destroy them. And whoever said transformation was supposed to be easy?

Absolutely nobody.

At the closing bell – here is what it looked like - the Dow rose by 32 pts, the S&P up 7 pts, the Nasdaq added 31 pts the Russell ended flat, the Transports gained 191 pts, the Equal Weight S&P fell 20 pts while the Mag 7 gained 59 pts.

Now here’s what’s interesting… While the major indexes suggested it was an “okay” day, the internals told a very different story.

Only three sectors finished higher: Financials +1%, Real Estate +1%, Industrials +0.5%. The other eight sectors closed lower. Consumer Staples got hit the hardest — down 1.5%. But let’s not forget — it has surged nearly 15% over the past eight weeks. Energy fell 1.1% — after rallying more than 21% over that same stretch. Basic Materials dropped 1.1% — coming off an 18% run in eight weeks.

So, what does this tell you? This isn’t panic. It’s short-term rotation. Traders are harvesting short-term gains in areas that have outperformed — using those profits to offset broader weakness elsewhere. They’re creating short-term alpha in a market that feels unstable. And in volatile environments, that’s exactly what active money tends to do. Longer term money tends to ride out the storm, comfortable in their portfolio, comfortable in the names they own and comfortable in their diversification. It doesn’t mean one is right and the other is wrong – it just means one is trading volatility while the other is investing thru the storm – understanding who you are is what matters.

Look – opportunities are all around us…Tech – XLK is now down 10% off its highs, and look at some of the individual names that have gotten beaten up and are down substantially off their highs…..AMZN is down 24%, AAPL – 7%, NVDA – 14%, PLTR -40%, NOW – 48%, CRM – 42%, GOOG -12%, META – 20%, ARKK – 24% and the list goes on and that is just the TECH space, check out financials – and in fact – investors went shopping there yesterday, …. If you look, you will find other ‘high quality’ names that have gotten beaten up for no reason other than anxiety…. I mean, you have to do your homework, but for me – there is a sale going on Wall St. you just need to look.

Eco data today includes Durable Goods, Capital Goods Ordered and Capital Goods Shipped, Housing Starts, Building Permits, Industrial Production, Capacity Utilization, and of course the January FOMC mins (which will not reveal anything that we don’t already know).

Today’s earnings calendar features ADI – all about Tech, semi’s and chip demand, MCO & VRSK is about Financials and Data Analytics. GPN is about Payments and Fintech. Jones Lang LaSalle (JLL) offers perspective on commercial real estate activity. Healthcare – think Insulet (PODD), and Utilities think OGE Energy (OGE). Altogether, the mix gives investors a cross-section of technology, financial services, consumer spending, healthcare, real estate, and energy demand.

Bonds caught a bid - the TLT up 0.15%, TLH +0.1%. The 10-yr is now at 4.06% while the 30 yr is at 4.69%.

Oil traded in a $2 range – ending the day at $62.33. This morning oil is up $1 at $63.37 – on the idea that Iran and Russia are now about to play army/navy in the Sea of Oman and Northern Indian Ocean. This is after Iran ran military drills in the Strait of Hormuz over the weekend. For now – we remain in the $62/$66.50 trading range.

Gold is trading at $4,913 and remains in the $4,658 (trendline support) and $5,115 trading range.

Bitcoin is trading at $67,500, Ethereum around $1,950, and Solana is $83.

The dollar keeps inching higher…. up 12 cts at 97.28. Do you see what is happening here? The dollar is trying to get stronger, and a stronger dollar is good for America. We remain in the 96/98 trading range.

European markets are all up! UK inflation fell to 3% down from 3.4%. Expectations are for it to move down towards 2% by year end and if that happens, then look for the BoE to cut rates. This morning – we see Italy and Spain fighting for first position – up 1.3%, while France is holding up the rear at +0.6%.

This morning US futures are higher….! (breathe). Dow is +225 pts, the S&P’s up 33 pts, the Nasdaq is up 145 pts, and the Russell is up 6 pts.

The S&P closed at 6,843 – up 7 pts. Yesterday we teased the trendline – breaching it to trade as low as 6,775 and then running right back to end the day right on it. the algo’s are testing it…. they want to see if the buyers retreat…so far they have not…..Let me repeat why this is important.

If the buyers retreat and support fails, the algos will light up. And when the sell algos light up, they will accelerate to the downside. The buy algo’s will step aside and look to buy stocks at lower prices…. A break here opens the door to a quick test of the November lows around 6,550-ish. Today appears to be an up day – so let’s see if we bust up and thru short-term resistance at 6,894 – if we do, that would be seen as technically positive.

Risotto with fresh fava beans and pancetta

Risotto is always an easy meal and is good for those who are vegetarians and or need to be gluten free. This one celebrates fresh fava beans enhanced with pancetta. – Truly a great dish.

For this you will need: Butter, Olive Oil, Finely Chopped Onion, Finely Chopped Pancetta, Arborio Rice, White Wine, 6 Cups Vegetable or Chicken Broth, Fresh Shelled Fava Beans, Chopped Parsley, Grated Pecorino Romano Cheese.

Begin by heating the butter and olive oil in a heavy saucepan. Add the onions and cook until translucent. Add the pancetta and sauté for 3 or 4 mins….

Add the rice and stir until it is well coated. Next add the wine and stir continually over medium heat until it is absorbed.

Once absorbed add in a ladle of hot broth – stirring constantly until absorbed…Repeat - adding ladles full of hot broth and stirring continuously.

About 10 minutes into the cooking time, add the fava beans and continue adding broth and cooking. You want the rice to be firm to the bite – but not hard.

Remove from the heat, add another dollop of butter and the pecorino cheese. Serve in warmed bowls and enjoy with your favorite white wine.