Oh, (D)rat!
Happy New Year! Best wishes to all for a terrific 2026!
A few weeks ago, the “check engine” light began flashing on our son’s car. Not knowing much about engine repairs, I consulted Google, which summarized the likely issue: an engine misfire, typically caused when a cylinder doesn’t ignite fuel properly due to bad spark plugs, clogged injectors, a weak fuel pump or blown gaskets disrupting the air-fuel mix. With that elementary level of combustion engine knowledge, we had the car towed to a repair shop, where the mechanic took a quick look under the hood and asked a question out of left field:
“Where do you park the car?”
“On the street.” (Our son lives in Brooklyn.)
“Your problem is rats.”
Rats??? Sure enough, the mechanic showed us three spots in the engine where rats had chewed electrical wiring down to the copper; apparently, as new buildings go up in the neighborhood, rats flee the construction sites for warm and dry locations, including car engines, where they chew on wires, causing electrical shortages. (New fun fact: rodents’ teeth – including on rats, mice and squirrels – never stop growing, so they chew on anything to wear down their incisors.)
Anyway, there was no engine misfire, no ignition or fuel delivery problems, just something out of left field — with the same hefty repair bill that my son would have received for the more typical cause of a flashing engine light (talk about blowing a gasket!).
Things come out of left field in the investment markets, too. Artificial Intelligence (AI) is one of those things, and many investors are seeing a flashing “check engine” light, concerned that AI stocks, like rats in the engine, are causing unseen damage under the hood that has led to a bubble that will burst and take down the entire market. Yet, unlike rats in the engine, AI also has potential benefits and continues to be broadly adopted, which is why Wall Street (where some might say there also are rats) continues to promote AI excitedly and why investors have continued to buy AI stocks at current prices. AI will have winners and losers; they might be the2 January 2, 2026 same as today or might be something different, coming out of left field. It is impossible to say with certainty, as the future remains unpredictable. However, I will continue to monitor the AI and tech sector closely as we move ahead and watch for any changes in investor sentiment.
In terms of the broader market, as we begin 2026 with mixed economic signals. The most recent data shows the economy grew at a hefty pace in the third quarter, yet employment figures have weakened; household incomes have been rising, yet inflation in various areas, including food, continue to take a larger share of household finances; oil prices have declined, which is a positive development for homeowners as winter begins to bite, yet home ownership remains out of reach for many individuals as mortgage rates remain uncomfortably high for many first-time home buyers.
Given the broader view, our equity-oriented client portfolios remain broadly diversified in US and non-US stock Exchange Traded Funds (ETFs) that track the major equity indices. Around the edges in our shorter-term tactical holdings, we sold our positions in a biotech ETF (at a gain) and a utilities ETF (at a slight loss) and have added positions in metals and aerospace/defense.
Our moderate portfolios hold the same equity positions in a smaller percentage, paired with a rolling three-month US Treasury ladder. Our income-oriented clients remain invested in a diversified stream of income from dividend paying ETF’s, preferred stock ETF’s, individual municipal bonds and/or bond funds. As always, I stand ready to make any necessary and appropriate adjustments in response to changes in the market, the investment environment or any of your personal goals.
Lastly, returning to AI, please be advised that this letter was written entirely by ChatGPT after Richard fed in basic market data and asked for a silly opening story to make market-talk feel relevant to readers.
Just joking! Thank you all for investing with MJB Asset Management. Please feel free to reach out to me to discuss any or all parts of this letter as well as any other topics of interest. I always enjoy talking with you.
Disclosure: Financial instruments discussed here may not be suitable for all investors. Before investing in any investment portfolio, Client and Financial Advisor should carefully consider the client’s investment objectives, time horizon, risk tolerance, and fees. The opinions expressed here are as of the date reflected and are subject to change. Diversification may not protect against market risk. There are risks involved in investing, including possible loss of principal. Past performance does not guarantee future results.