Creative Destruction, Momentum, SpaceX

• Job growth has accelerated in recent months following a stall in much of 2025, with temporary employment and manufacturing overtime hours showing positive momentum
• Momentum stocks have outperformed global markets by the largest spread on record over the past two months, driven primarily by AI-related companies which account for the majority of capital raised this year
• Rising chip prices may support the AI trade but reverse decades of technology-driven deflation, while inflation breakevens continue moving higher and long treasury yields reach new highs across developed economies

Summary

Labor Market and Fed Policy

The U.S. labor market shows signs of stabilization and early acceleration after stalling through much of 2025. Job growth has strengthened in recent months, with positive movement in key leading indicators including temporary employment and manufacturing overtime hours. The strengthening labor market may refocus the Federal Reserve on combating persistent inflation, as evidenced by rising inflation breakevens despite a ceasefire with Iran.

Bond Markets and Yields

Long-term treasury yields are reaching new highs across developed economies, with bond markets responding to inflation concerns and shifting monetary policy expectations.

AI-Driven Market Dynamics

AI-related companies dominate market movement, creating a sharp divide between AI stocks and other sectors. AI-related issuances have accounted for the majority of capital raised this year. Momentum stocks have outperformed global markets by the largest spread on record over the past two months, with movements approaching statistically extreme levels (5σ events). However, skyrocketing chip prices reverse multi-decade deflationary trends, potentially impacting the broader digitized economy. Historical data suggests high capital expenditure levels haven't consistently delivered strong returns.

Global Trade and Geopolitics

Agricultural imports to China are running well below historical norms, impacting agricultural exports. The U.S. appears relatively insulated from economic fallout related to conflicts with Iran.

SpaceX IPO

SpaceX is targeting one of the largest IPOs in history across multiple metrics, representing a significant capital markets event.

Outlook

While AI may reshape labor markets unpredictably, the U.S. economy has demonstrated resilience through previous transformations and appears positioned to adapt again.