This Is How AI Breaks the Economy

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

This Fed governor says AI could break the economy
The biggest tech index is flashing a warning
Get two free picks at tonight’s Secret AI Stocks Summit

The Fed just said something every investor needs to hear…

Yesterday, Federal Reserve Governor Lisa Cook issued a warning to a room full of economists in Washington, D.C.: If AI keeps boosting productivity, unemployment will rise, even as the economy stays strong.

That’s because, as AI models get more capable, companies will lay off workers and automate more tasks – keeping the same output with fewer roles.

This would be a new era for the Fed.

Its normal policy tools, like cutting interest rates, don’t apply to a world where the economy runs hotter with fewer workers.

Cutting rates is the Fed's go-to move when the economy is struggling — but this economy wouldn't be struggling. It would be booming… only without as many workers participating.

Pumping cheap money into an already-hot economy is a recipe for inflation. It wouldn’t do a thing to cure unemployment like we’d normally expect it to.

Cook’s speech didn’t capture yesterday’s headlines as much as the rally on Wall Street yesterday. But the scenario she laid out is critical to understand for us as investors.

AI isn’t just disrupting software firms across financial, legal, cybersecurity, and other areas. It also has the potential to rewrite the economic rulebook.

The traditional economic signals investors have relied on for decades — interest rate cuts, payroll numbers, economic growth — may no longer mean what they used to.

That's why it's more important than ever to follow the data.

In a world where the old signals are losing their meaning, the only thing you can trust is what the market is telling you right now.

TradeSmith’s tools are designed to do exactly that.

Our tools show you what to buy, when to buy, and when to sell…

And right now, they’re on the verge of flashing a sell signal on the world’s most important tech index.

As we pointed out yesterday, the Nasdaq 100 has entered a Short-Term Health Yellow Zone – the first caution signal since mid-March last year, just before the Liberation Day crash.

Short-Term Health is TradeSmith’s volatility-based trend indicator. It looks at how a stock has behaved in the past to establish what's normal for it — then flags when something has changed.

By studying how a stock has moved over time, it can tell you whether you're in a healthy uptrend (Green), a caution zone (Yellow), or a downtrend (Red) — without requiring you to read a single chart.

And unlike our classic Long-Term Health indicator – which we designed for buy-and-hold investors – Short-Term Health is more suited for evaluating trades with holding periods of months, not years.

To be clear, a Yellow Zone isn’t a death sentence. As you can see, the Nasdaq 100 has entered caution territory before… and went on to extend its uptrend.

But a Yellow Zone entry tells us that tech’s short-term momentum has slowed. And it’s not a buy until it moves back into the Green Zone.

Not only that, but the Nasdaq also has the highest number of Short-Term Health Red Zone stocks of any index we track (43%)… along with the second-fewest number of Green Zone stocks (48%).

Put another way, the Nasdaq 100 is the “sickest” of the 10 indexes listed above.

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So it’s time to get more selective with our investments…

That’s where Jason Bodner's Quantum Score comes in.

Jason spent years on Wall Street filling multimillion-dollar trades for the biggest institutional investors in the world.

Watching that money move taught him a simple, but crucial, concept: The biggest gains follow the biggest buyers.

So when he quit Wall Street, he built a proprietary system to track them.

The Quantum Score combines two key factors:

A company's fundamental strength – earnings, revenue, and profit margin growth.
Its technical momentum, specifically price action and unusually large buying volume.

Crunching these factors together, every stock gets a single score from 0 to 100. Anything above 75 is a buy.

Right now, only 38 of the 101 stocks in the Nasdaq 100 score above 75. Less than 40% of the index qualifies as a buy in Jason's system. Combining that with Short-Term Health cuts the list down to 36. Here are the top five by Quantum Score:

What may surprise you is that none of the top five are the Magnificent Seven stocks that dominated the market in 2023 through 2025.

Instead, we find Micron Technology (MU) and Lam Research (LRCX) — two semiconductor companies… Biotech names Regeneron (REGN) and Vertex Pharmaceuticals (VRTX)… And consumer brand Monster Beverage (MNST).

It makes sense that two chipmakers top the list. These are the physical hardware makers that the AI megatrend depends on. Big money knows this, and Jason's system is picking up those flows clearly.

But Regeneron and Vertex are potentially even more profitable – although less well-understood – AI plays.

These biotechs are harnessing AI for faster drug discovery…

Regeneron is best known for two blockbuster drugs: Eylea, which treats serious eye conditions including macular degeneration, and Dupixent, used for conditions like eczema and asthma.

But it’s also an under-the-radar AI play.

Through its Regeneron Genetics Center, the company has built one of the world’s largest proprietary human genetics databases – sequencing the DNA of millions of patients to identify the biological targets that drugs need to hit.

Now, it’s layering AI on top of that data to decode complex disease mutations faster than ever.

Most drug candidates fail in clinical trials because they were aimed at the wrong target – a problem that has made drug development one of the most expensive gambles in business.

By using AI to identify targets that are already validated in real human genetic data, Regeneron is de-risking that process before it spends a dollar on development. And the more patients it sequences, the smarter its AI gets — a self-reinforcing advantage that only widens over time.

Vertex is doing something similar. It’s best known for conquering cystic fibrosis – a deadly genetic disease that affects up to 160,000 people worldwide – with a trio of drugs.

The company is now using AI to identify drug targets faster and more accurately than traditional research ever could. If it can do to other diseases what it did to cystic fibrosis, then the upside is enormous.

There are plenty of other “hidden” AI plays like these two…

Jason and technologist Jeff Brown will be getting into more details on these stocks at their Secret AI Stocks Summit, which airs tonight at 8 p.m. ET.

Together, they’ll show how they’re using Jason’s Quantum system to spot other “hidden” AI stocks like Regeneron and Vertex.

And the timing is critical. Their data shows waiting even a few weeks can reduce potential gains by a third or more.

And they’ll not only get into details on how they find these under-the-radar AI plays. They’ll also each reveal one of their favorite picks during the event.

So if you haven’t already, click here to reserve your seat automatically – it’s free to attend.