In the ever-fluctuating world of stock markets, conditions have become particularly intriguing. Erik Smolinski, a full-time options trader who has consistently outperformed the S&P 500 since he began trading in 2007, shares his unique perspective on the current market environment.
Stocks have been on a remarkable run, with investors remaining unfazed by geopolitical tensions and fueled by strong earnings. However, the interest rate landscape has become more complex, with investors considering whether the Federal Reserve will maintain higher rates or even increase them if inflation persists. Smolinski finds this combination of factors to be unusual, not necessarily a cause for panic, but certainly a reason to pay close attention and potentially make some adjustments.
Record highs: A normal occurrence
Smolinski emphasizes that the market spending time at all-time highs is not unusual. It’s natural for investors to feel nervous when stocks are near record levels, but he advises against making emotional decisions. Hedging portfolios, reducing exposure, or avoiding risk altogether in anticipation of a pullback may not be the best strategy for long-term investors.
Owning stocks generally means accepting risk in exchange for the possibility of higher returnsSmolinski notes. He encourages investors to review their portfolios and ensure they are comfortable with their investments, especially if the rate environment becomes more challenging. This could mean checking for over-concentration in a single stock, sector, or theme and confirming that asset allocation still aligns with one’s time horizon and risk tolerance.
The bond market: A key signal
While investors shouldn’t make rash decisions, they shouldn’t be complacent either. Smolinski is closely watching the bond market, particularly the speed of moves in yields rather than the levels themselves. A slow grind toward higher yields on strong growth is different from a fast, disorderly spike. The velocity of yield changes can have a significant impact on equities.
He also pays attention to real yieldswhich adjust for inflation. A 5% 10-year Treasury yield means something very different when inflation is 2% compared to when it’s at 4%. Smolinski believes that when the 10-year real yield pushes toward the top of its post-2026 range, bonds start genuinely competing with stocks for capital. Understanding what’s driving yields higher is crucial, as different factors can have varying impacts on risk assets.
At the time of the interview, the bond market was signaling that investors should not assume rates will move lower smoothly. Smolinski advises investors to verify market claims for themselves rather than relying solely on commentators. He recommends using tools like the CME FedWatch Tool to externally validate what the market is pricing in.
AI in trading: A new frontier
In a separate but related development, many traders are turning to artificial intelligence to gain an edge in the market. AI-powered tools can help avoid common human errors in trading, such as panic-selling, over-trading, and revenge-trading. These tools can assist in creating stock screeners, trading agents, research assistants, and other automated systems to help traders gain a competitive advantage.
According to a 2026 survey conducted by eToro, the number of investors using AI to pick investments soared by 75% in the last year. Many traders believe that AI has the potential to turn a bad trader into a good one by helping them manage emotions and stick to a trading plan. However, AI tools can’t provide a winning strategy or help a trader who doesn’t understand the fundamentals of the market.
Brendan Li, a former banker who runs an educational group for traders, echoes this sentiment. He believes that AI has helped close the performance gap between retail traders and institutions. Li uses AI to vibe code a trading agent on the AI platform Cursor, which has significantly improved his portfolio’s performance. He now sells courses and mentors other traders looking to vibe code their own bots.
The process of vibe coding a trading tool typically starts by asking the AI to create a coding project and providing prompts to set the structure of the trading system. This includes giving the AI a trading strategy, telling it which trading signals to look out for, how to open and when to sell positions, and giving it access to real-time market data. The bots can be as simple or as complicated as a trader would like, with no special equipment needed besides a computer and a subscription to an AI platform.
While AI comes with caveats, many traders find that the benefits outweigh the risks. Over 35% of traders said their biggest challenge when trading was managing emotions or dealing with losses, according to a 2026 survey by Quantified Strategies. AI can help control fear and greed, ensuring consistency and removing emotion from the trading process.
