The market’s rhythm last week was less a steady march and more a fevered drum circle — a crescendo of risk where junk bonds danced like they’d been given a second life, shorts were steamrolled, and tech names inflated as if they’d discovered anti-gravity. Non-profitable tech soared, quantum darlings doubled in days, and most-shorted baskets became confetti. For a moment, it looked like nothing could stop the parade.
However, when markets surge this intensely, fatigue sets in quickly. This week already feels like the first stagger after the sprint, a roll-over rather than a breakaway.
Beneath the headline highs lies a positioning puzzle. Institutions are lumbering around in oversized long exposure, their hedges giving the illusion of moderation. Hedge funds bulked up into the rally. CTAs re-entered the game, though cautiously. Retail traders, never one for caution, are indiscriminately long across the board. It’s a costume party where everyone feels overdressed yet still wishes they had worn more.
Step back and the view is spectacular. Four American giants now tower above $3 trillion each, and the five biggest names command one-fifth of global market capitalization. Nine of the ten largest U.S. companies are essentially AI proxies. America has become both the stage and the actors, carrying world markets as if it were Atlas himself. Every worry — deficits, tariffs, sticky inflation, labor fatigue — has been stuffed into back rooms while the spotlight shines on Silicon Valley’s relentless narrative of efficiency and supremacy.
And yet the small picture hints at cracks in the floorboards. Narrow leadership persists, with five U.S. names still accounting for a fifth of global equity weight. Mid-caps and cyclicals are playing catch-up as traders bet on the real economy benefiting from . Junk rallies and manic squeezes suggest late-cycle froth.
Fatigue is showing: hedge fund alpha turned negative for the first time in six weeks, systematic strategies bled, and last week’s performance spreads flipped violently — mega-cap tech versus non-profitable tech undercut, hedge fund VIPs versus most-shorted baskets turned inside out. Underneath the roaring chorus, some strings are snapping.
The AI trade continues to be both fuel and fault line. Nvidia’s (NASDAQ:) OpenAI tie-up is a $100 billion ouroboros, feeding itself in circular logic. Private valuations balloon toward 100x multiples. Public names like Palantir stretch to 70x revenues. Meanwhile, AI efficiencies cut jobs and compress margins — an irony where the technology meant to save productivity also undercuts employment. It feels less like a smooth glidepath and more like a trapeze act, with traders transfixed but unable to look away.
Beyond America’s spotlight, Europe shuffles in the shadows. Fiscal cracks, fragile politics, and tariff blows leave the continent without a catalyst, its luxury and auto names stumbling against Chinese competitors. Draghi’s reform sermons sound weary a year later. Capital increasingly bypasses public markets altogether — swelling into private equity and private credit’s $12 trillion machine, which is hoovering up opportunities and starving public investors of fresh value. Where once Google or Amazon created trillions in public markets, now SpaceX, Bytedance, and OpenAI fatten themselves in private silos.
So where are we in the cycle? Are we dancing on the edge of a 2000-style bubble, or is this still 1998 with the music yet to peak? Some argue post-GFC we’ve been in one elongated super-cycle, punctuated by mini-recessions quickly smoothed by policy liquidity. Perhaps cycles themselves are dissolving into a post-modern churn, where every dip is met with faster fixes, every wobble another pretext for capital to double down.
Markets today look like capitalism at its purest — capital chasing size, speed, and momentum, indifferent to fundamentals. A 30% surge in 100 days, over $1 trillion in M&A since June, and retail trainers comparing their ETF gains to their day jobs. Value is becoming harder to define. Fair value itself may be an anachronism in an age where FOMO, liquidity, and positioning dominate the tape.
Last week’s Marvel-like rally gave investors their Avengers moment — familiar heroes, glittering victories, and the illusion of invincibility. But markets, like franchises, can overextend. The risk now is that after Iron Man comes the sequel fatigue, where storylines fray and audiences drift. For now, though, the screens still glow, the crowd still cheers, and the question lingers: are we at the top of the arc, or is there another act left in this spectacle?
Should we be worried?
Trouble Brewing in the American Job Engine
The U.S. economy is beginning to resemble a machine running on uneven gears—still moving, but grinding with friction that could soon snap the chain. Last week’s rate cut was the Fed’s first attempt at oiling the wheels, but the quarter-point move felt more like a dab of grease than a full repair. A 50bp slice would have been closer to what the engine required. As it stands, Powell & Co. may yet be forced to pull a “jumbo cut rabbit” out of the hat if the creaks and groans grow louder.
At the heart of every American expansion lies a simple flywheel: jobs feed incomes, incomes feed spending, spending drives profits, and profits feed more jobs. Right now that flywheel is sputtering. Artificial intelligence has provided Wall Street with a gleaming new axle—soaring equity valuations, fresh capex cycles—but on Main Street, the wheels aren’t turning. Hiring has slowed to a crawl, and without that torque, the growth engine stalls.
Consumer spending makes up two-thirds of , yet job growth—the primary source of household fuel—has dropped from 168k in 2024 to barely 29k per month in recent months. The looks deceptively calm, drifting only from 4.2% to 4.3%. But the still waters hide a structural shift: restrictive immigration has throttled labor supply, lowering the “break-even” level of job creation needed to hold unemployment steady from 150–200k down to virtually zero. Growth is being preserved not by strength, but by weakness in the labor pipeline.
Layered atop this is tariff grit grinding the cogs. With $350bn collected annually—more than double the windfall of corporate tax cuts—someone has to absorb the cost. Firms, unable to fully pass it through to consumers, are cutting back on hiring instead. Chief executives, in their latest Business Roundtable survey, spoke cheerfully about capex and sentiment, but their hiring index sat firmly in recessionary territory. It is the equivalent of a racing team painting the car while quietly dismantling the engine.
Beyond trade, government retrenchment is acting like a wrench in the spokes. Cuts across federal, state, and local levels are bleeding into adjacent sectors—healthcare, education, and research. Even when challenged in the courts, many of these reductions are being upheld, accelerating layoffs.
Education is heading into its peak hiring season with half the budget lopped off, pointing to a potential 200,000 drop in education jobs this fall alone. Add in the expiry of federal severance and buyout programs, and another couple of hundred thousand could be shown the exit. Hospitals and labs are already beginning to shutter or shed staff.
Immigration raids are another under-appreciated stress fracture. Farmers and builders are raising alarms as workers disappear, either through enforcement or fear. It is a slow-motion supply shock that will sap growth in ways harder to track but very real. Meanwhile, tariffs look permanent, and trade relationships remain in disarray, adding further drag.
The dynamic risks slipping from a virtuous cycle into a vicious one: weak hiring leads to weaker spending, which pressures margins further, which in turn leads to weaker hiring again. For now, markets remain buoyant on AI exuberance and rate cut hopes, but equity valuations may be pricing a future of earnings growth that simply cannot take root in soil where household incomes are no longer growing.
At some point, Wall Street’s optimism will have to face Main Street’s erosion, and that’s when the machine threatens to seize.