Slowing Momentum, AI Concentration, and Shrinking Policy Space

The latest period delivered unmistakable evidence of U.S. and global economic deceleration amid rising policy uncertainty. The defining U.S. development was November’s ADP private payroll report, which showed a surprise decline of 32,000 jobs—the first contraction since March 2023 and a sharp reversal from October’s revised gain of 47,000. Small businesses shed 120,000 positions, underscoring the increasingly K-shaped nature of the recovery. This labor-market signal, compounded by the 43-day government shutdown that delayed official data releases, heightened fears of a sharper slowdown and pushed market-implied odds of a December Federal Reserve rate cut to roughly 86%, targeting a federal-funds range of 3.50%–3.75%. Simultaneously, the Fed ended quantitative tightening on December 1, concluding a $2.4 trillion balance-sheet reduction and re-injecting liquidity into the system.

Despite broad macro softening, artificial intelligence remained the dominant growth engine. AI-related capital expenditures exceeded $405 billion in 2025, accounting for roughly half of inflation-adjusted GDP growth and powering a 29% year-to-date rally in the technology sector. Corporate fundamentals remained supportive, with Q3 S&P 500 earnings rising 13.4% year-over-year and more than 85% of companies beating estimates, though tariff uncertainty muted equity upside and widened credit spreads. Globally, policy divergence widened. The ECB held rates steady, the Bank of Japan signaled a December hike toward 0.75% amid yen weakness near 155/USD, and IMF outstanding credit climbed to $161 billion, highlighting mounting pressure on emerging economies. U.S. Treasury yields rose sharply, gold reached repeated record highs, and commodities delivered mixed performance amid ample oil supply.