For those of you who would prefer to listen:
The Stock Market is not the Economy. The Economy is not the Stock Market. To be sure, there are definite overlapping influences, no question. But they are both completely separate entities. At times they move in tandem. Other times, they move in opposite directions. The Market is forward-looking. It anticipates events and prices in those expectations in advance. Of course, there are events that are difficult if not impossible to predict. Covid is an example. September 11th is another. Presently, the Economy is showing signs of slowing while the Stock Market keeps rising back near all-time highs. This is a period of disconnection between the two.
The American Consumer accounts for roughly 70% of GDP. The employment situation is a critical barometer for economic activity as Americans tend to spend more when they feel good about their incomes. Friday brought the monthly Job Report. 139K were created in May. That was better than expected. It was much stronger than feared. That said, March and April were revised lower by a combined 95K jobs. The unemployment rate stayed at 4.2% for the 3rd consecutive month. Health Care and Hospitality saw strength. Federal government jobs shrunk. That’s a response to DOGE. The participation rate slipped a bit. That’s likely a reflection of the immigration dynamics which could put downward pressure on the unemployment rate ahead. It’s worth watching.
Hiring has slowed. Proctor & Gamble, maker of household brands like Tide, Pampers and Crest, just announced they’re laying off 7,000 jobs. That’s roughly 6% of their workforce. It’s 15% of its non-manufacturing employee base. It’s a material number. They’re not alone. Microsoft said it plans to cut 6,000. We’re seeing it across industries. Companies don’t usually cut workforce when they’re feeling optimistic about the future. That is, unless there’s another way to grow.
Amazon is testing out humanoid robots to deliver packages. That would replace human drivers. The company is reportedly developing the artificial intelligence software that would power such robots. Amazon is building a “humanoid park” in San Francisco. It sounds like sort of an indoor obstacle course to test out the robots to prepare for real-life experiences. The company has made it clear that people are still critical to its business, but AI will help speed up deliveries and increase efficiencies. It will likely make it more profitable too, down the road.
The Job Market in America is facing a multitude of pressures. Among them are the trade wars, immigration, government efficiency policies and AI. If manufacturing is going to make a comeback here, it’s not likely to create a windfall of jobs. Factories and warehouses are increasingly seeing less people and more robots. Automation is not the choice human skill. This is a long-term theme which is proving irreversible. Companies that have invested early in automated solutions have experienced growth in both revenues and profits. Their stocks have done well. Those that have struggled have largely been left behind.
When it comes to the US Economy, there has been more discussion about the weak housing market and slowing travel activity. High mortgage interest and uncertainty around trade has cooled home sales. Many of you have seen it firsthand. Travel has cooled too. Both airlines and hotels are seeing lower bookings this Summer. Average Summer flight prices have declined 7% compared to last year. The Dollar weakness has made foreign trips even more expensive. The slowing demand reflects it. Flights to Sydney, Australia are 23% cheaper this Summer. There’s also been a huge drop-off in foreign travel to the United States. Flights from Canada have seen a 20% decline this year. But Canadians are still traveling. They’ve just opted to fly over the US, landing in Mexico and the Caribbean instead.
It’s not just a US thing. The rest of the world has been experiencing slowing growth. The OECD (Organization for Economic Co-operation and Development) just cut their economic estimates. Global growth has decelerated from 3.3% rate experienced last year. The organization lowered its growth rate to2.9% in 2025. It was +3.1%. They see the trend continuing into next year with a new estimate for 2.9% growth again in 2026. It’s a tick lower from the previous 3.0% estimate. US growth was also lowered. It now sees a sluggish 1.6% growth rate this year, a sharp drop from the previous 2.2% estimate forecast just in March. It sees the sluggish growth continuing at 1.5% in 2026. The reason for the OECD cuts were cited as a substantial increase in tariffs, retaliation by trading partners, high economic policy uncertainty, slower migration, and sizable reduction in the federal workforce. It’s all that uncertainty that remains with all the issues around the globe.
On its way back near all-time highs, the Stock Market took an abrupt turn downward Thursday. A show-stopping spat between the richest man in the world and the most powerful man in the world nearly broke social media. Where that goes is anybody’s guess. It cooled a bit Friday. Tesla alone accounted for 40% of Thursday’s S&P decline. A feud for the ages. Yes. That really happened. Just a stunning event. That’s really all I have to say about that.
In addition to the slowing Economy, America has a serious debt problem. Washington clearly has no intention of fixing it. In fact, it’s been a one-way street of spending this century. This was center to the dust-up which spiraled out of control between Musk and Trump. The Big Bill passed by the House had next to no chance of passing as is in the Senate. But an edited version was expected. Elon Musk provided more cover for the handful of Republicans willing to speak out against the President on spending. We’ll be watching these developments closely in the coming weeks.
The fact is the United States owes $37 Trillion in debt. That calculates to $107K per citizen. It costs $1.1 Trillion in interest payments to service this debt. That’s more than we spend on defense. What’s more, our nation is running a $2.2 Trillion budget deficit. The US national debt is now rising by $1 Trillion every 180 days. The problem compounds every day we fail to act.
These are some really big numbers. It’s really easy to lose perspective as they get thrown around all the time. We tend to develop an immunity to it. So, here’s some perspective on big numbers:
- A Million seconds ago was May 23rd. That was 2 weeks ago. That was the day the House passed the bill and sent it to the Senate.
- A Billion seconds ago was 1993. Bill Clinton entered the White House.
- A Trillion seconds ago was 30,000 B.C. Cro-Magnon humans roamed the Earth.
- 37 Trillion seconds ago, Homo sapiens didn’t exist. Homo erectus were still evolving. There was no recorded history back then.
How about this perspective on $37 Trillion: 37 Trillion $1 bills, stacked end to end, would wrap the Earth’s equator 144,000 times. Just imagine that!
Back to the Market:
S&P 6K: It’s back there again. In fact, it closed Friday, heading to the weekend, on the button. The S&P last touched 6K in February. It first touched it back in November. The Stock Market has officially erased all the losses from the April crash. Tech has been the clear leader. The AI trade has been back on. Optimism around trade with China has also been fuel for the rally. A follow-up meeting between the 2 economic powers was just scheduled for Monday, this time taking place in London. The thinking is, if a major breakthrough is made between the US and China, global trade will improve and global growth will return. If it were only that simple.
Here’s another thing: The Dollar is still near lows. Stocks have soared since the April declines but the Greenback has been stuck at the lows. What’s more, Gold has held steady at these all-time highs, reflecting continued concerns and a flight to safety. Even cryptocurrencies have recovered their losses, nearing all-time highs again. That’s the Market basically saying that despite being home to the world-leading innovative companies, America is no longer considered the stable safe haven it once was. The Moody credit downgrade reflected it. The activity in Washington has not instilled confidence.
The Stock Market is not the Economy. The Economy is not the Stock Market.
I leave you this Friday with complete gratitude. Today is D-Day. It’s the day that changed the course of history, for the good. I wrote about it Memorial Day weekend. We honor those great Americans who gave up their tomorrows so we could all continue to have our todays.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
