The Market Outlook for the Week Ahead, or Watching Dancing Fools

When markets are rising unexpectedly and run up to excessive valuations, we are sent running to discover the reasons why. Much of the catastrophic loss in jobs this month has correctly been the result of AI, which is demolishing low-level employment at a record pace.

This is nothing new and has been going on since the invention of the steam engine by Thomas Newcomen in 1712. The industrial revolution quickly followed, and standards of living soared. I bet you didn’t know that one steam-powered loom put 1,000 rural women working at spinning jennies out of work. As recently as 1976, the Wang 1200 word processor made millions of secretaries jobless, while hundreds of thousands of bookkeepers were sent to the want ads by Microsoft’s Excel spreadsheets in 1985. Fast forward to today, and 41% of companies say AI will eliminate jobs over the next five years.

That the jobs are going fast is beyond doubt. Amazon (AMZN) plans to use robots to take a big bite out of its 2.5 million fulfillment workforce. Customer service by humans has almost ceased to exist, as I recently noticed while trying to book a trip around South America. And you may have noticed the current government will dump 300,000 workers this year, with many of the functions taken up by apps or computers, as the private sector has been pursuing relentlessly for decades.

This is all accelerated by the fact that the faster companies cut costs (fire workers), the more their profits grow, and the higher their share price appreciates. Company managements are largely paid in stock options.

And what always follows these disruptive job losses? Job gains are usually by a large multiple of those lost. After a few years of pain, prosperity certainly follows. And what form will these new jobs take? Will we be reduced to oiling the joints of robots, which I saw 15 years ago in Tesla’s Fremont factory when I picked up one of the first Model Ss?

Not really.

For a start, the United States is dreadfully short of 500,000 cybersecurity workers. This is why I have been pushing Palo Alto Networks (PANW), CrowdStrike (CRWD), and Palantir (PLTR) at every opportunity. The US power grid has to triple in size just to accommodate current planned AI needs, creating vast demand for copper, Freeport McMoRan (FCX), and Aluminum Alcoa (AA), and the public utilities they go into, like Duke Energy (DUKE). Brownouts are looming. The solar, wind, and battery industries will see a renaissance, creating millions of new blue-collar jobs….once we get a new administration.

And here is another blockbuster for you. AI will extend your lifespan by ten years as revolutionary new drugs are discovered, and cures are achieved, creating millions more jobs. That creates enormous demand for every level of senior care, from doctors and nurses to elder care and home caretakers. Accelerating this trend is the fact that the current generation of retiring baby boomers is the largest in history, some 85 million at its peak. This is not far away, some kind of stuff. This is happening right now!

And what will the end result of all of this be? Higher standards of living, record employment, and loftier stock prices as well. How far this goes is anyone’s guess. As I never tire of telling you, market bottoms are easy to spot because of price-earnings multiples and book values. Market tops are impossible to peg because the limits of human greed are impossible to quantify.

Financial advisers who stayed glued to valuation measures in 1995 watched stocks go up for five years and went out of business. The Japanese have an old expression that I heard daily in Tokyo in the 1980s. “The fool may be dancing, but the greater fool is watching.”

If you want to quit watching and start dancing, it’s best to pick the highest quality, cheapest sector about to benefit hugely from newly unfolding trends.

That would be banking.

No industry will benefit more from the twin stimuli of falling interest rates and deregulation. There is also a major merger and acquisitions boom unfolding. The number of US banks peaked at 18,000 in 1986. Today, we are at 4,446, and we could be headed for four. Most other major countries, like the UK and Australia, only have four or five.

When readers ask me if they should buy small caps, I tell them not to bother. Some 60% of the (IWM) are banks. By buying your regional bank directly, you will skip the dead wood in the (IWM), high fees, and get double the upside performance.

Regional lenders have outperformed large banks, but both have lagged the S&P 500 since the pandemic. There have been 118 regional bank mergers so far this year, worth $23 billion compared to 500 in 1998. Bank analysts cite the following as cash cows ripe for takeover: Prime targets include Salt Lake City-based Zions Bancorp (ZION), Maryland’s Eagle Bancorp (EGBN), Texas-based First Foundation (FFWN), and Tulsa-based BOK Financial (BOKF).

Many of these deals involve small banks taking over each other to create super-regional banks. Comerica (CMA) is considered a prime acquirer of small regional banks.

Of course, the end result of this will be higher fees, less competition for the consumer, and less lending in unprofitable rural areas. But that has been the trend for all American industries for the past 50 years. Accounting for 80% or more of their industries are three car companies, four airlines, three delivery companies, three trucking companies, and four telephone companies.

The list goes on.

My September performance is up +0.97%. That takes us to a year-to-date profit of +54.77%. My trailing one-year return rose to +94.66%. That takes my average annualized return to +51.22%, and my performance since inception reaches a new all-time high of +806.66%. These are all non-compounded numbers.

I am holding on to just two longs going into the September 19 options expiration, which is just a perilous two days after the Fed’s interest rate decision. Those are in falling interest rate plays, Goldman Sachs (GS) and JPMorgan (JPM).

All of the low-hanging fruit has been picked. With the Volatility Index ($VIX) hugging the $14 handle, I executed no GTD trades last week and maintained a rare 80% cash position. Up 54.13% on the year, I have a lot of hard-earned performance to protect, and it’s not worth sticking my neck out on a high-risk marginal trade.

Some 63 of my 70 round trips in 2023, or 90%, were profitable. Some 74 of 94 trades were profitable in 2024, and several of those losses were really break-even. That is a success rate of +78.72%.

Try beating that anywhere.

Consumer Price Index Rises 0.4%, and is up 2.9% YOY, for the fifth consecutive month. Food was up a hefty 0.5%. It solidifies two more quarter-point rate cuts from the Fed by year-end. Stocks remained dead unchanged as they had been expecting much worse. It looks like auto costs are starting to tick up again. New vehicles rose by 0.3% while used cars and trucks rose by 1.0%. But the real sting was in motor vehicle maintenance and repairs, which jumped by 2.4%.

Weekly Jobless Claims Rise to a Shocking 263,000, a four-year high. It makes a rate cut next week a sure thing and drives bond prices up. Initial claims for state unemployment benefits jumped 27,000 to a seasonally adjusted 263,000 for the week ended September 6, the Labor Department said on Thursday. Economists polled by Reuters had forecast 235,000 claims for the latest week. Texas accounted for 15,000 of the gain, so there may be an accounting error here.

One of the Largest Options Trades in History took place yesterday when someone bought 100,000 calls on Warner Bros. Discovery (WBD) on Thursday. There were rumors of a takeover offer by David Ellison’s Paramount. I can’t wait to see what the story is on this one. If no offer appears, someone is going to Sing Sing.

Oil Jumps 2% on Ukraine Drone Attack. A Ukrainian drone attack on a Russian port suspended loadings, outweighing pressure from oversupply concerns and weaker U.S. demand risks. The drone attack on Russia’s northwestern port of Primorsk – one of the country’s largest oil and fuel export terminals – led to a suspension of oil loading operations overnight. Money is starting to move into the energy sector as one of the few laggards in the market.

Oracle Soars by 33%, after the company pointed to a demand surge for its cloud services from AI firms, underscoring its deeper push into the backbone of artificial intelligence systems. The surge in Oracle’s cloud business reflects a broader shift in the industry, with companies such as OpenAI and xAI scrambling to secure massive computing capacity needed to stay ahead in the AI race by boosting spending to hundreds of billions of dollars annually. Buy (ORCL) on dips.

Mortgage Demand Hits Three-Year High. A sharp drop in mortgage interest rates finally got some homebuyers off the fence. It also helped more current homeowners save on their monthly payments. Total mortgage application volume jumped 9.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results include an adjustment for the Labor Day holiday.

2025 Payrolls are Marked Down an Incredible 911,000, indicating that the economy is far weaker than thought. US job growth was far less robust in the year through March than previously reported, adding to mounting pressure on the Federal Reserve to lower interest rates. The number of workers on payrolls will likely be revised down by a record 911,000, or 0.6%, according to the government’s preliminary benchmark revision out Tuesday. The final figures are due early next year. Before the report, the government’s payroll data indicated employers added nearly 1.8 million total jobs in the year through March on a non-seasonally adjusted basis, or an average of 149,000 per month. The revision showed average monthly job growth was roughly half that.

Broadcom Scores $10 Billion Chip Order, the largest in history, popping the share by 10%. The deal solidifies the company’s role as a leading custom chip provider amid Big Tech’s push to diversify beyond Nvidia’s pricey and supply-constrained artificial intelligence processors. One of the top AI providers is thought to be the customer.

Tesla EV Market Share Falls to 38%, from 80%. General Motors has jumped from zero to 15% but is losing more money on EVs. The decline highlights the threat from automakers ramping up EV incentives at a difficult time for the industry. Analysts expect an EV sales bump to continue through September in the United States, then drop when federal tax credits expire at the end of the month, raising financial pressure on Tesla and other automakers.

Consumer Sentiment Comes in Weak, with the University of Michigan at a six-month low and inflation expectations the highest since June. It is now about 20% below December 2024, when sentiment had exhibited a post-election bump, but remains above the trough in sentiment seen in April. This month’s decline was visible across groups by age, income, and stock wealth.

Gold Tops 1980 Inflation-Adjusted High. Gold has surged about 5% this month, hitting an all-time high of $3,674.27 an ounce, and has set more than 30 nominal records in 2025. The spot price of gold has eclipsed its inflation-adjusted peak set on Jan. 21, 1980, when prices topped out at $850, which equates to about $3,590 in today’s dollars. Gold’s rally has been driven by growing anxiety about the US’ economic trajectory, with investors seeking a hedge against rising prices and weakening currencies, and its price could vault higher if equity markets start to crack.

My Ten-Year View – A Reassessment

We have to substantially downsize our expectations of equity returns over the next four years. My new American Golden Age, or the next Roaring Twenties, is now looking at multiple gale-force headwinds. The economy will completely stop decarbonizing. Technology innovation will slow. Trade wars will exact a high price. Inflation will return. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. My Dow 240,000 target has been pushed back to 2035.

On Monday, September 15, at 8:30 AM EST, the New York Empire State Manufacturing Index is out.

On Tuesday, September 16, at 8:30 AM, Retail Sales are announced.

On Wednesday, September 17, at 7:00 AM, we get Housing Starts. At 11:00 AM EST, we get the Federal Reserve Interest Rate Decision.

On Thursday, September 18, we get Weekly Jobless Claims.

On Friday, September 19, at 10:00 AM, we obtain the Baker Hughes Rig Count.

As for me, when Anne Wojcicki founded 23andMe in 2007, I was not surprised. As a DNA sequencing pioneer at UCLA, I had been expecting it for 35 years. It just came 65 years sooner than I expected.

For a mere $99 back then, they could analyze your DNA, learn your family history, and be apprised of your genetic medical risks. But there were also risks. Some early customers learned that their father wasn’t their real father, learned of unknown brothers and sisters, that they had over 100 brothers and sisters (gotta love that Berkeley water polo team!), and other dark family secrets.

So, when someone finally gave me a kit as a birthday present, I proceeded with some foreboding. My mother spent 40 years tracing our family back 1,000 years, all the way back to the 1086 English Domesday Book (click here).

I thought it would be interesting to learn how much was actually fact and how much was fiction. Suffice it to say that while many questions were answered, alarming new ones were raised.

It turns out that I am descended from a man who lived in Africa 275,000 years ago. I have 311 genes that came from a Neanderthal. I am descended from a woman who lived in the Caucasus 30,000 years ago, which became the foundation of the European race.

I am 13.7% French and German, 13.4% British and Irish, and 1.4% North African (the Moors occupied Sicily for 200 years). Oh, and I am 50% less likely to be a vegetarian (I grew up on a cattle ranch).

I am related to King Louis XVI of France, who was beheaded during the French Revolution, thus explaining my love of Bordeaux wines, Chanel dresses, and pate foie gras.

Although both my grandparents were Italian, making me 50% Italian, I learned there is no such thing as a pure Italian. I come in at only 40.7% Italian. That’s because a DNA test captures not only my Italian roots, but also everyone who has invaded Italy over the past 250,000 years, which is pretty much everyone.

The real question arose over my native American roots. I am one-sixteenth Cherokee Indian according to family lore, so my DNA reading should have come in at 6.25%. Instead, it showed only 3.25% and that launched a prolonged and determined search.

I discovered that my French ancestors in Carondelet, MO, now a suburb of Saint Louis, learned of rich farmland and easy pickings of gold in California and joined a wagon train headed there in 1866. The train was massacred in Kansas. The adults were massacred, and all the young children adopted into the tribe, including my great X 5 Grandfather Alf Carlat and his brother, then aged four and five.

When the Indian Wars ended in the 1870s, all captives were returned. Alf was taken in by a missionary and sent to an eastern seminary to become a minister. He then returned to the Cherokees to convert them to Christianity. By then, Alf was in his late twenties, so he married a Cherokee woman, baptized her, and gave her the name of Minto, as was the practice of the day.

After a great effort, my mother found a picture of Alf & Minto Carlat taken shortly after. You can see that Alf is wearing a tie pin with the letter “C” for his last name of Carlat. We puzzled over the picture for decades. Was Minto French or Cherokee? You can decide for yourself.

Then 23andMe delivered the answer. Aha! She was both French and Cherokee, descended from a mountain man who roamed the western wilderness in the 1840s. That is what diluted my own Cherokee DNA from 6.50% to 3.25%. And thus, the mystery was solved.

The story has a happy ending. During the 1904 World’s Fair in St. Louis (of Meet Me in St. Louis fame), Alf, then 46, placed an ad in the newspaper looking for anyone missing a brother from the 1866 Kansas massacre. He ran the ad for three months, and on the very last day, his brother answered and the two were reunited, both families in tow.

Today, it costs $99 to get your DNA analyzed, but with a much larger database, it is far more thorough. To do so, click here.