December 16, 2025 | All In and More

US job growth remained sluggish in November, and the unemployment rate rose to a four-year high of 4.6% (Bureau of Labor Statistics data out today), up 120 basis points (bps) from the April 2023 low of 3.4%.

A 120-bps rise in the US unemployment rate has never occurred in the post-war era without a recession either starting or already underway (grey bars below since 1948).

The Treasury market thinks the US Fed is more likely to cut interest rates in January, with the Fed-leading two-year Treasury yield down to 3.48%, the lowest since July 31, 2022.

So far, risk markets are retreating, led by Bitcoin, down 30% since October 6; Oracle shares, down 42% since September 22; and oil prices (WTIC), sub-$56 a barrel — the lowest since February 2021 (nearly 6 years ago).

The AI trade is wobbling under fears of overbuild, extreme valuations, circular deals and elusive revenue. See, Wall Street Sees AI Bubble Coming and Is Betting on What Pops It:

Alphabet, Microsoft, Amazon.com Inc. and Meta Platforms Inc. are projected to spend more than $400 billion on capital expenditures in the next 12 months, most of it for data centers. While those companies are seeing AI-related revenue growth from cloud-computing and advertising businesses, it’s nowhere near the costs they’re incurring.

“Any plateauing of growth projections or decelerations, we’re going to wind up in a situation where the market says, ‘Ok, there’s an issue here,’” said Michael O’Rourke, chief market strategist at Jonestrading.

Earnings growth for the Magnificent Seven tech giants, which also includes Apple Inc., Nvidia and Tesla Inc., is projected to be 18% in 2026, the slowest in four years and slightly better than the S&P 500, according to data compiled by Bloomberg Intelligence.

Rising depreciation expenses from the data center binge is a major worry. Alphabet, Microsoft and Meta combined for about $10 billion in depreciation costs in the final quarter of 2023. The figure rose to nearly $22 billion in the quarter that just ended in September. And it’s expected to be about $30 billion by this time next year.

All of this could put pressure on buybacks and dividends, which return cash to stockholders. In 2026, Meta and Microsoft are expected to have negative free cash flow after accounting for shareholder returns, while Alphabet is seen roughly breaking even, according to data compiled by Bloomberg Intelligence.

Financial markets have rarely been so richly valued as today, and there has never been a time when the S&P 500 had a Cyclically Adjusted Price-to-Earnings ratio (CAPE) above 40x (like now) that yielded a positive investment return over the following 1, 3, 5 or 10-year period. Still, as noted by the BIS in its December 2025 Quarterly Review this week, investors are taking the over on that bet.

And with leverage: US margin debt (borrowing against investment portfolios) has reached a record $1.2 trillion, up 36% year-to-date.

So-called professionals are risk-drenched too with fund manager cash levels at a record low of 3.3% (Chart 1 below since 1999), sentiment the highest since the 2021 peak (Chart 2 below,) and those overweight equities and commodities also the highest since the 2021 top (dark blue in Chart 3 below, overshooting ISM manufacturing in light blue), all courtesy of Bank of America (via Macro Charts).
No one can be sure when mean reversion will complete, but the pieces are in place for a historic loss cycle, and very few will have liquid cash to take advantage of clearance sales. The time to prepare is before storms hit, and individuals need to look out for themselves.

Danielle Park December 16th, 2025

Posted In: Juggling Dynamite

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