There’s a growing divergence between the US economy and markets.

The economy is slowing and inflation is sticky, while stocks are at all-time highs, credit spreads are tight and cryptocurrencies are skyrocketing.

Investors are in risk-on mode.

Payroll Growth Stalls

The Bureau of Labor Statistics released August nonfarm payroll data on Friday.

Payrolls grew 22k versus 75k expected, a very weak print, which cements a September rate cut.

Big Picture: The Fed will cut, the only question is if cut will be 25bps (most likely) or 50bps.

Note: With immigration rapidly decreasing under Trump administration, falling payrolls reflects less immigrant labor, in addition to a broader hiring slowdown. This makes judging the growth impact of declining payrolls harder. But regardless, it’s clear that economic activity is slowing.

Consumers Under Pressure

Credit card delinquencies (90+ days) have reached the highest level since the Global Financial Crisis.

Growing delinquencies show that Americans are struggling to keep up with everyday costs like food and housing.

Big Picture: Look out for more signs of US consumer weakness, an ominous sign for the economy.

Stock Valuations Stretch Higher

The S&P 500 forward P/E is the highest since 2020.

This shows investors are overlooking concerning economic indicators.

AI euphoria, including the hundreds in billions in expected capex, continues to drive up the stock market.

Big Picture: Despite the shaky economy, investors are pricing in strong growth, especially from AI.

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