“Han Solo: How we doin’?
Luke: Same as always.
Han Solo: That bad huh?”
~ “Star Wars, Return of the Jedi”
I was reminded of this fictional conversation as I drove to work this morning. We were already in one of those no-win moods on Wall Street, and now we can add unrest in the Middle East to the long list of worries.
Casual market observers may wonder what I mean as the headline S&P 500 has not been that bad, but as I always say, it is what happens underneath the surface that tells the real story. We are in a full-blown bear market for software company stocks, thanks to the narrative that people and enterprises will just use AI to create custom software. These stocks have been badly beaten up as a result.
The full narrative goes a little something like this: AI is taking over the world, humans will no longer have jobs, and no one will use pre-packaged software to do work on a computer. This narrative exists in concert with another that has AI company stocks down because “companies are spending too much on AI and they will not be able to get a return on these investments because AI is overhyped.”
These narratives contradict one another, but when was it ever necessary for the market to make sense?
The average index investor has missed all of this fun because we have seen a large rally in industrial company stocks and the stocks of consumer staples. Coca-Cola is up more than 35 percent over the last month, and Deere & Company is up approximately 40 percent year to date. Nothing runs like a Deere, but that is a remarkable short-term gain for a company that is still experiencing a downturn in its actual business. I have lived in Atlanta my entire adult life, and few things are as refreshing as an ice-cold Coke on a hot day, but this is 2026 and sugary soft drinks don’t scream future.
Now we have to add war in the Middle East to the situation. So, how we doin’? Same as always. But is it really that bad?
In the real world, away from Wall Street’s narratives, technology companies are doing really well. This includes both software companies and AI companies. Can AI write code and therefore replace the need for software? Maybe, but that’s like saying a coffee maker will replace the need for Starbucks. Sound ridiculous? Just because something can be done, does not mean it will. People choose to go to Starbucks rather than making coffee at home, and people and enterprises will likely choose to buy software rather than developing it themselves because they would rather have their AI agents working on making their actual business more productive than building software that they could just purchase. Let’s put it this way: If the business didn’t see the value in hiring human coders, then why are they going to want to train AI agents for that purpose?
Does this mean AI is overhyped? No; business leaders will likely use AI to get the most out of the software they already have, which would greatly enhance productivity. One thing I know for certain: technology leaders are not the right people to ask about the future of AI. They are brilliant, but they are too close to the situation to see the big picture and they don’t understand how non-tech (often non-brilliant) people think.
What about Iran? What is happening in the Middle East today is more important than anything in the stock market. However, it is our role to discuss impacts on investments. In the short term this may finally be the trigger for a correction. No one likes market corrections, but they are a healthy part of long-term bull markets. We are overdue, and this would likely help correct some of the absurdities we have discussed. In the longer term it is not likely to have a large impact on the market.
Irrational short-term trading and war in the Middle East? I think Luke was right: this is the same as always.
Warm regards,
Chuck Osborne, CFA
