Where Are All The Jobs?
August brought another weak reading on the U.S. labor market: just 22,000 jobs added, far short of the 75,000 forecast. To make matters worse, June was revised down to a net loss of 13,000 jobs, the first drop of this scale since 2020. And is not just related to tariffs as the loss in jobs was widespread across sectors, with one of the few exceptions being healthcare (buoyed by the US’s aging population).
Now Here’s Where it Gets Interesting:
Given Powell signaled in August that a weak labour market could be a reason to cut rates, with the latest data, the market appears confident that at least a 25bps cut is coming (jumping from 82% last week to 86% today). Remarkably the odds a 50bps cut is coming has nearly tripled, now sitting at 11%, according to Polymarket data. Looks like Trump will get what he wanted all along…
Is The American Dream Dead?
A recent poll from the WSJ revealed that ~75% of Americans no longer believe in the American dream (that hard work can earn them a better lifestyle). What’s striking is how sharply sentiment collapsed right after the pandemic hit in 2020. Since then, inflation has surged, the wealth gap has widened, and the labor market has faltered, so it’s little surprise many feel like getting ahead is out of reach.
Are The Cracks Starting Show in US Dominance?
Not to go full Ray Dalio doomsday scenario, but there may be some merit to his prophecies as the US dollar is coming under increasing pressure as of late. Developing countries are starting to move out of dollar-denominated debt in favor of lower-rate currencies such as the Chinese Renminbi (1.4%) and Swiss Franc (0%). By contrast, the U.S. Federal Funds Rate sits at 4.25–4.50%. Many nations borrowed heavily for infrastructure projects in the 2010s, when U.S. rates were cheap. Today, those loans come with steep interest costs. The question now: is this the start of a broader retreat from US. dollar dominance and an opening for China to expand its role as a global lender?
Could There Be a Silver Lining?
Assuming the legality of Trumps trade war and tariffs holds up, it could be the country’s shot to lower its national debt. Especially at a time where the Big Beautiful Tax Bill proposes increasing borrowing by $4.1 trillion over the next decade (roughly the size of the projected tariff revenues over the same period). Without these revenues, the debt crisis could continue to balloon and that has bond investor skittish as it could send yields even higher.
AI is Scaling Companies Faster Than Ever
Lovable co-founder Anton Osika recently shared that his Swedish “vibe coding” startup scaled from $1M to $100M in ARR in just eight months. This kind of trajectory isn’t an outlier. New data from a16z shows that the average enterprise startup now hits $2M ARR in its first year. By comparison, what used to be best-in-class performance in the pre-AI era would barely register against today’s AI-driven benchmarks.
What does this mean for public markets investors? Companies that adopt AI faster will likely see faster growth as they can do more with the same amount of resources (or less). However, a recent survey actually showed that larger companies are slowing down AI adoption rates.
Corporate Mega Mergers Are Unwinding:
First it was Warner Bros. Discovery, announcing in June it would unravel its $43B merger after just three years together. Now Kraft Heinz is following suit, splitting up a decade after its Buffett and PE-backed merger failed to deliver promised cost synergies. Like many conglomerates, the company has traded at a discount to the sum of its parts and lost value since the deal closed. Activists are circling these companies too, and earlier this week we saw Elliott Management take a $4B stake in PepsiCo, as they’ve lagged Coca-Cola.
Is Private Equity Secondaries Unstoppable?
Carlyle has raised an additional $20B of Private Equity Secondaries capital as the space continues to heat up. It’s estimated there is currently a $3T backlog of aging private equity stakes as the industry has seen massive growth in the last decade coupled with a challenged exit environment. While we are seeing massive pools of secondary-focused capital being raised, the ratio of dry powder to deal volume is actually fairly low. So, is there a risk this space gets too big? Probably… for now I would be wary of anyone who is raising funds at lower costs of capital.
How Does One Navigate this Market?
Despite the uncertainty and mixed signals in the markets these days, nothing feels more true than the famous Peter Lynch quote:
“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”
Until next week!
Non-Standard Deviations