Concerns over Tariffs + a Potential AI Bubble = a Lower Stock Market

On October 10, 2025, the market experienced its worst drop since the "Liberation Day" correction in March this year.  President Trump is threatening an escalation of the trade war with China over a serious dispute around rare earth minerals essential for high tech and defense.  Though it is unlikely that this triggers another correction, it does highlight the fragility of our current economy.  Many have been warning about an AI bubble, but it's important to understand what that really means.  

The "Magnificent 7" are the largest 7 companies in the US and now make up 30% of the S&P 500.  These companies include:

1. Alphabet (Google)

2. Amazon

3. Apple

4. Meta (Facebook)

5. Microsoft

6. Nvidia

7. Tesla

   
   

Many of these companies have made such significant investments in AI that it seems extremely unlikely all of them could pay off to justify current stock prices.  That means that if expectations around these Mag 7 companies waivers, it would drag down the S&P 500 and cause a ripple effect of shaky confidence.  Yesterday, Jamie Diamond, the CEO of Citigroup, issued a warning about AI stock valuations reminiscent of Alan Greenspan's famous "irrational exuberance" warning in 1996 about the valuation of internet stocks.  

Two things are important to remember: First, the stock market doubled between the time of Alan Greenspan's warning and the eventual internet tech bubble burst in 2020.  Second, the companies that will eventually dominate the new technology are not necessarily the ones getting the most attention today.  In the late 1990's the darling stocks included Pets.com, Webvan, and Boo.com.  Google, now the undisputed internet heavyweight didn't even IPO until 2004.  The point is we have no idea who will emerge as the winner of the AI revolution.  Many of the darlings of today will be the Pets.com of tomorrow.

At Village Wealth Advisors, we are watching things closely.  The FED will cut rates one, if not two times before the end of this year.  This will stimulate economic growth and should also continue the increase in stock prices.  If you have questions or concerns, please don't hesitate to contact our office at 805.603.4962.

"All opinions and estimates constitute Village Wealth Advisors’ judgment as of the date of this communication and are subject to change without notice. Village Wealth Advisors does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments."