The news cycle returned to concerns about AI running amok, as a group of prominent researchers and executives highlighted the speed at which the technology is developing and called for regulation to slow the rapid advance. Ironically, among investors, it was the industry’s harshest critics who were the most skeptical of the doom and gloom warnings. Their cynical interpretation is that AI’s current leaders are finding it too expensive to keep competing against thousands of clever startups coming in from all angles. Wouldn’t it be nicer for them if everybody just slowed down and allowed the current incumbents to determine the pace of progress from here? It would be like the Wright brothers deciding that human flight should be limited to ten feet above the ground. The FAA exists for a reason, but it was created 55 years after Kitty Hawk. It has only been about five years since AI started performing impressive acts.

AI isn’t the only arena where Washington could shape the investment backdrop. As the U.S. approaches midterm elections, prediction markets call control of the Senate a coin flip and control of the House a likely Democratic win. President Trump weighed in, promising $5,000 “citizen dividends” to be paid contingent on Republicans retaining both halves of Congress. The price tag would be more than $1 trillion. With inflation still sticky and the 10-year Treasury yield above 5% for the first time since 2007 (as we covered in our look at rising rates), the bond market understands that this level of fiscal stimulus would complicate the Fed's job of fighting inflation and place upward pressure on rates.

Deficits are always tomorrow’s problem, but one area where tomorrow is fast approaching is Social Security. The program faces a 22% benefit cut in about five years unless Congress finds a way to increase revenue. Practically speaking, that means higher payroll taxes, with the marginal increase likely to affect high earners disproportionately. The graduated income tax, which is perceived to pay for government services, gets a lot more press, but the much flatter payroll tax, which is perceived to pay for entitlements, is at least as important. We say “perceived” because at the end of the day all taxes are taxes, and all spending is spending.

Accommodative fiscal policy and torrid reported earnings growth pave the way for steady stock market gains. Investors may wonder at what level all the good news is priced in. We agree that certain market sectors may be priced beyond perfection, but valuations do not look unreasonable where the underlying earnings can be sustained. As always, we preach earnings growth and diversification. Don’t let your portfolio become too reliant on the continued strength of the stocks making all the news.

Looking for high quality stock picks?

In this issue, our analysts recommend a large-cap leader in the consumer cyclical sector operating within the internet retail industry. As North America’s leading grocery technology company, this company helps nearly 100,000 stores sell online while building a fast-growing, high-margin advertising business. Over the next five years, it is projected to deliver a robust 21.8% compound annual total return, backed by an upside/downside ratio of 4.5 to 1.

Our second selection is a large-cap player in the technology sector specializing in the software infrastructure industry. As one of two dominant firms in chip design software, this company is positioned to benefit from surging demand for custom AI semiconductors. Over the next five years, it is projected to deliver an impressive 17.7% compound annual total return, backed by an upside/downside ratio of 5.9 to 1.

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The commentary is excerpted from the issue of the Investor Advisory Service newsletter published at the end of September 2026. To receive commentary like this in a timely matter and receive actionable stock ideas each and every month, subscribe today. The Investor Advisory Service stock newsletter was named to the Hulbert Investment Newsletter Honor Roll for the 16th consecutive year for outperforming every up and down market cycle since 2007.

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