The scare:

The Great American Job-Creation Machine Comes Back to Life Demand for labor is back. Some economists speculate that immigrants are rejoining the workforce, boosting labor supply.

Economists had written off the great American job-creation machine. Now, it is revving back to life.

Hiring has surged this spring, with employers adding more than half a million jobs between March and May. Factories, restaurants and city halls have all shifted into hiring mode, a pivot from last year, when the healthcare industry almost single-handedly propped up job creation.

Friday’s May jobs report showed the labor market has now notched its best three-month stretch in more than two years. (…)

President Trump isn’t making as many rapid changes to tariff policy as he was last year, giving businesses an easier time planning. AI companies are rushing to build data centers, creating a boom in that corner of the construction industry. Though many Americans are gloomy about high gasoline prices and rising inflation, well-heeled consumers continue to spend robustly, supported by a roaring stock market—Friday’s selloff notwithstanding. (…)

Job gains have averaged 188,000 each month over the past three months. At the same time, however, the unemployment rate hasn’t really fallen. Instead, it has been steady at 4.3%—signaling that the labor market’s neutral gear might not be as low as economists had thought. (…)

Companies have learned to live with the uncertainty of AI changes, tariffs and war, and see less need to put their plans on hold. (…)

There are more signs that an influx of workers could be under way. Wage growth has been sluggish. Over the past 12 months, average hourly earnings have climbed 3.4%, well below the 4% pace this time last year. If the workforce weren’t growing, many economists would expect to see a faster rise in wages as companies competed with each other to lure scarce talent.

(…) some economists are starting to suspect that foreigners who dropped out of the U.S. workforce at the height of last year’s aggressive immigration enforcement are now coming back to work. (…)

Michael Konczal, senior director of policy and research at the Economic Security Project, has found that last year’s slowdown in job creation—and this spring’s recovery—have both been driven by industries that employ a disproportionate share of noncitizens, like construction and food service. (His breakdown of noncitizen-heavy industries is based on the most recent available data, from 2024.)

A combination of several factors probably explains this year’s labor-market resurgence, Konczal said. “But as we look at private-sector jobs picking back up, it is broader than it had been in 2025—and it’s also very specific to industries that employ noncitizens,” he said.

Ed Yardeni: “Friday’s print confirmed what we have said for weeks: The labor market is improving.”

A few more facts to start debunking the WSJ analysis:

• The two prior months were revised up by a total of 93k. These came primarily from late-reporting data in three sectors: Leisure & Hospitality, Health Care & Social Assistance, and Local Government.
• A major factor at play was the 55k person increase in local government hiring, +44k excluding education.
• Also there was a 70k jump in leisure/hospitality vs the average monthly increase of 14k over the prior 12 months.
• Meanwhile, healthcare, the other major contributor, did not spike, adding 35k jobs, in line with the average of 38k over the prior year.
• Other sectors were mixed and not suggestive of any cyclical recovery. Jobs were lost in retail, financial services and information. Professional/business services, which showed +22k new jobs in April, added only 6k jobs in May. Manufacturing added 7k people, the average of the last 3 months. Factories have not “shifted into hiring mode” as the WSJ says. Construction hired a net 17k, or +13.7k on average in the last 3 months, same as in the 4 months previous. The recent upward push was entirely a service-sector phenomenon.
• The hires and quits rates both remain seriously depressed. The share of unemployed workers out of work for 27 weeks or more rose to 27.5% in May, up from March/April and up from 20.4% a year ago and well-above pre-pandemic norms. The situation for unemployed job seekers remains grim.

The Household survey counted 149k new jobs in May after 3 months in a row of declines totaling 475k.

Monthly Establishment (payrolls) and Household surveys can diverge but, over the long term, the broader trends of both surveys inevitably align.

A closer look to the recent past reveals an unusually large divergence, particularly in the March-May period when payrolls rose 565k while the Household survey revealed that 141k people lost their job.

First, let’s explain the jump in the Household Survey (HS) number:

Due to the federal government 2025 shutdown, the BLS’s annual adjustments to its population controls were delayed, rolled out in early 2026. Rather than retroactively smoothing out historical data, the BLS applied a massive cumulative adjustment directly into the January 2026 data.

Second, a major wedge in 2026 is labor market composition. The data highlights that payroll strength is heavily concentrated in service-oriented sectors, particularly Leisure & Hospitality (+70k in May) and Healthcare (+35k). Concurrently, the HS reported a substantial increase in individuals working part-time for economic reasons (surging by 409k in 3 months to 4.8 million and +8.6% YoY in May).

Because a single worker taking on two part-time shifts is counted as two job additions on the Establishment payroll side, but only one employed person in the HS, the growth in multi-jobbing artificially expands payroll numbers relative to the actual number of people finding employment.

Actually, this is a sign of economic weakness, as people scramble to meet ends.

The Soccer Punch

Importantly, as Goldman Sachs explains:

Payroll growth increased the most in the leisure and hospitality (+70k) and local government excluding education (+44k) sectors—possibly reflecting an early impact from World Cup hiring or a boost to hiring from Memorial Day falling early in the month.

Bloomberg concurs and adds Canada’s May job jump as supporting evidence:

Boosted by hiring at restaurants, bars and hotels, the US hospitality industry added the most jobs in more than three years in May, according to government data out Friday. Canada also saw a jump in employment, driven in part by strong hiring in the sector, a separate report showed. (…)

FIFA expects the event to generate the equivalent of about 185,000 full-time jobs in the US alone, with the accommodation and food services and air transportation sectors benefiting the most. Firms in places like Atlanta, Philadelphia and San Francisco have been optimistic about the World Cup in recent weeks, the Federal Reserve’s Beige Book survey of regional business contacts showed. (…)

US local governments in May added the most jobs in more than two years, Friday’s report showed — possibly reflecting hiring for supporting roles like security ahead of the event, according to Thomas Simons, the chief US economist at Jefferies. Arts, entertainment and recreation employers also increased headcount. (…)

On June 1, the Canadian Press wrote:

(…) “The key point is there are real economic effects from a large sporting event or a large entertainment event like this,” said BMO chief economist Doug Porter in an interview. (…)

With the tournament starting later this month, the report said the U.S. will benefit the most from tourism spending, but Canada and Mexico will also see gains.

Spending at bars and restaurants is expected to rise, the report said. (…)

Ontario and BC accounted for 76.1% of all net new jobs added to the Canadian economy in May 2026. Toronto and Vancouver are the only Canadian cities hosting World Cup games.

The tournament begins this week (June 11).

The WSJ’s “Great American Job-Creation Machine Comes Back to Life” is just a “soccer punch”, really.

Hopefully, the FOMC won’t be knocked out from it.

PMI surveys poll purchasing managers who feed from actual trends in client demand:

• Demand for services has been largely stalled over the past three months, losing the strength seen earlier in the year. Firms were hesitant to take on staff in May, with headcounts falling for the second time in three months. In
  fact, the rate of job shedding was the most marked since May 2020. (S&P Global)
• Hardest hit are the consumer-facing service sectors, where orders are now falling at the steepest pace since the pandemic in 2020, blamed on a combination of squeezed spending power from energy prices hikes and customers pushing back on higher prices being charged for services. However, business services are also seeing reduced order book growth compared to earlier in the year and financial services firms are coming under pressure from higher interest rates. (S&P Global)
• The [ISM] Employment Index contracted for the third month in a row [in May] with a reading of 47.9 percent, a 0.1-percentage point decrease from the 48 percent recorded in April; of the four subindexes that make up the composite PMI, it is the only one that remains below its 12-month moving average. Respondents commented frequently that their companies had instituted hiring freezes or were not backfilling vacated positions. Six industries reported job growth in May, 10 were in contraction. (ISM)
• The challenging [Canadian] business environment, and ongoing uncertainty in the outlook, meant that employment numbers declined sightly in May. It was the eighth time in the past nine months in which staffing numbers have fallen, although the rate of contraction in May was marginal. (S&P Global)

Indeed Job Postings keep falling, down 4.5% between early March and May 29:

Also last Friday:

Small Business Job Openings Decline

NFIB’s May Jobs Report shows little change in the employment market as the Small Business Employment Index remained essentially flat, registering 100.3 in May after measuring 100.4 in April. This is the third consecutive month the Index declined. The current reading is now below the 2025 average of 101.2 but still slightly above the historical average of 100.0.

 

In May, 29% (seasonally adjusted) of small business owners reported job openings they could not fill, down 5 points from April and marking the lowest level since May 2020. Twenty-seven percent have openings for skilled workers (down 2 points), and 9% have openings for unskilled labor (down 4 points).

“Concerns about rising labor costs increased significantly to the highest reading in the survey’s history,” said Chief Economist Bill Dunkelberg. “Small business owners are facing mounting pressure to retain workers, and many firms are navigating costly new state mandates. While current conditions restrict Main Street’s already-thin profit margins, compensation measures remain steady for now.”

Fourteen percent of business owners reported labor costs as their single most important problem, up 5 points from April.

A seasonally adjusted net 9% of owners plan to create new jobs in the next three months, down 4 points from April and marking the lowest level since May 2020. Plans to hire are now below its historical average of a net 11%.

Overall, 55% of owners reported hiring or trying to hire in May, up 2 points from April. Forty-six percent of owners (84% of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill (unchanged). Twenty-four percent reported few qualified applicants (down 2 points), and 22% reported none (up 2 points).

The reality for American consumers is that YoY growth in weekly payrolls (black) has been stuck around 4.1% for the past 12 months while inflation (PCE) was creeping up from 2.3% one year ago to 2.9% last February and spiking to 3.8% in April. The May headline PCE is forecast at 4.0% by the Cleveland Fed. May headline CPI, out Thursday, is seen at +4.2%.

Consumers did their job keeping the economy afloat, thanks to increased borrowings (dash line), but the squeeze on their real income is now making it very challenging.

• US Consumer Borrowing Posts Biggest Back-to-Back Gain Since 2022

US consumer borrowing posted another strong increase in April, in the biggest back-to-back gain since the end of 2022.

Total credit outstanding rose by $20.7 billion after a revised $22.2 billion advance in March, Federal Reserve data showed Friday. The median estimate in a Bloomberg survey of economists called for a $17.7 billion advance.

Non-revolving credit, such as loans for vehicle purchases and school tuition, was up $9.1 billion in April. Credit-card and other revolving debt outstanding rose by $11.6 billion. The report doesn’t include mortgages. (…)

The data in Ed Yardeni’s chart end in Q1. Delinquent loans 90+ days on credit cards, student and auto loans are all up sharply and historically high. Even mortgages and helocs are inching up.

Maybe the economy is about to get its own sucker punch.

But what about inflation?

Trump acknowledges price pain for farmers as supporters cheer for ending war

President Donald Trump on Friday promised further relief payments for farmers pinched by surging fertilizer and fuel prices, as he acknowledged the costs the Iran war had imposed on one of his core constituencies. (…) Fertilizer is up more than 25 percent this year, as the Persian Gulf region produces 30 percent of globally traded chemical fertilizer, according to the International Food Policy Research Institute. (…)

He got a polite earful from the handpicked roundtable participants who let him know they were hurting from prices, tariffs and consolidation in the seeds, trading and beef industries. (…)

Trump repeatedly alluded to the aid payments his first administration had sent farmers to offset the tariffs he imposed on an array of foreign countries [$12B], and said he was considering similar payments to compensate for the costs of the Iran war. (…)

When Trump invited the panelists to speak, he asked them to keep their remarks brief, saying he had to return to D.C. to oversee the war in Iran. He then left to fly to his golf club in Bedminster, New Jersey, where he is spending the weekend.

Trump Says Fed Rate Increase Would Be Wrong Ahead of Warsh Debut

(…) “There’s no reason to raise interest rates. We should actually lower interest rates.” (…)

“You know, we have debt, we have other things,” he added, “We have things we want to take care of. I want to go bigger on the military.” (…)

“Now, if inflation comes, and, you know, people live with inflation, but if inflation comes what happens is you stamp it out,” he told NBC. “But success can kill inflation just like higher interest rates.”

China Car Sales Slump Drives PCA to Deepen Annual Forecast Cut

China’s car sales fell 22.1% in May, underscoring the persistent weakness in the market that prompted the China Passenger Car Association to sharply downgrade its annual sales outlook.

The PCA now expects full-year passenger-vehicle sales to drop 11%, compared with its earlier projection of a 1% decline. The association said the revision reflects the unexpectedly severe drag from high oil prices on consumer demand and the broader industry supply chain — conditions already evident in the May sales slump.

Passenger-vehicle sales declined to 1.5 million last month, with internal-combustion-engine models dropping 39% year-on-year. Sales of new energy vehicles, which includes EVs and plug-in hybrids, also fell 7.5% compared to the same period last year, according to data from the association.

Exports grew 75.1%, the data showed, but the increase was not enough to counter the domestic slump. (…)

The industry had expected a recovery starting from April, yet sales in the first five months of the year contracted 19.5%, underscoring the challenges automakers face as government support measures are scaled back and overcapacity pressures intensify. (…)

Overseas EV sales are still strong. BYD Co.’s total vehicle sales rose for the first time in nine months in May. The Shenzhen-based automaker delivered 383,453 vehicles last month, up 0.3% from a year earlier on strong international demand. NIO Inc. also reported a 62% year-on-year increase in sales.

Tesla Inc. shipped 85,982 EVs from its Shanghai plant, of which 47,281 were sold in China. This represented an increase from a year earlier. (…)

Trump says Netanyahu will have ‘no choice’ but to accept a deal with Iran US president tells FT that he ‘calls the shots’ after urging the Israeli leader not to retaliate against Tehran

Israeli Prime Minister Benjamin Netanyahu will have no choice but to accept any deal the US negotiates with Iran, Donald Trump said, because the US president “calls the shots”.

“He won’t have any choice,” Trump told the FT in a telephone interview. “I call the shots. I call all the shots. He [Netanyahu] doesn’t call the shots.”

Trump spoke shortly after Iran launched a salvo of ballistic missiles at Israel in the most serious breach of the ceasefire that was struck in early April.

The president separately told Fox News that he would instruct Netanyahu to refrain from taking retaliatory action against Iran — a position at odds with statements from the Israeli military. (…)

“We’ll see how it ends up. But they [the missile strikes on Israel] were attacks that did not kick at all. It’s one of those things that’s been going for 3,000 years, or 47 years, depending on how you count.”

In contrast, however, to his position since US vice-president JD Vance led the first negotiations with Iran in early April, Trump did not sound bullish that a deal with Iran was imminent.

“I think the deal is going on,” he said. “We’ll see what happens.” (…)

Asked what would happen if any such deal failed “on its merits”, Trump said he would consider a commando raid on Iran.

“It means [one of] two things,” he said. “Number one, it would mean that possibly we would go in and take care of the rest of the place that we didn’t take care of militarily. Or it would just mean that we would keep the blockade on Iran because the blockade has been probably more powerful than any attack that was ever made on that country.”

Trump’s comments about Netanyahu follow the leak last week to Axios of a blistering call between the two leaders in which a US official described the president telling Netanyahu: “You’re fucking crazy. You’d be in prison if it weren’t for me. Everybody hates you now. Everybody hates Israel because of this.”

Trump confirmed that the call took place and did not dispute the way it was characterised.

Despite several US-brokered Israel-Lebanon ceasefires, including one that came into force last week, Trump has been unable to stop Israel from striking targets almost daily in Lebanon, including a strike earlier on Sunday on a Hizbollah stronghold in Beirut.

Iran’s attacks came in retaliation for that strike. Iran has said a permanent Israeli ceasefire is a precondition of any US-Iran deal.

• Trump told Netanyahu during a call to hold off because “we are close to doing something good in terms of a deal,” a U.S. official told Axios.

• Trump: “final negotiations on peace” are under way. “Things should move quickly,”

• Israel damages Iran petrochemical plant despite Trump rebuke

• Iran’s armed forces announce the end of military operations against Israel but have warned of stronger attacks if Israel resumes attacks on Lebanon

From Axios on June 5 (my emphasis)

President Trump’s envoys Steve Witkoff and Jared Kushner traveled to the national lab in Oak Ridge, Tennessee on Thursday for consultations with a team of technical experts that could play a role in nuclear negotiations with Iran, Axios has learned. (…)

“This meeting in Oak Ridge doesn’t mean that a deal is going to happen, but it is a sign that the negotiations are in a very serious phase and that there is a good chance to get it done and we want to be prepared,” a U.S. official said.

Some of the country’s foremost experts in uranium processing and centrifuge technology are based at Oak Ridge National Laboratory and Y-12 National Security Complex. (…)

The two U.S. officials said a team of roughly 100 experts was recently established to take part in the nuclear negotiations should a preliminary deal be reached.

The Iran envoys made the trip to meet with members of that team and discuss preparations for the potential implementation of a nuclear deal.

Witkoff and Kushner agreed terms with their Iranian counterparts last week on a 60-day MOU to extend the ceasefire, reopen the Strait of Hormuz, allow Iran to sell oil and launch talks on Iran’s enriched uranium stockpile and limitations on future enrichment.

Trump asked for two amendments to the text last Friday, and the Iranians said they would ask for tweaks of their own. The U.S. is waiting for the official Iranian response, but the sources said the gaps are relatively narrow.

For example, Trump asked Tehran to agree that any final deal would include a 60-day deadline to conclude the down-blending of Iran’s enriched uranium, but the Iranians want that deadline to be 90 days, according to two sources briefed on the talks.

There is also disagreement over how much of Iran’s frozen billions would be released, and when. The U.S. has said it would release funds after a final deal was reached and concrete steps were taken toward implementing it, a U.S. official said. The Iranians want some of the funds released immediately.

An adviser to Iran’s supreme leader told CNN that the talks were deadlocked over the frozen funds and “the ball is in Trump’s court.”

If the negotiations advance to the second phase, the team of experts that met with Witkoff and Kushner would have to develop a plan for the disposal of Iran’s nuclear material, how to limit the enrichment program further, and how to verify compliance.

The U.S. officials said some of the same experts with whom Witkoff and Kushner met on Thursday participated in the process of recovering enriched uranium from Venezuela several weeks ago. That material, from a research reactor, arrived last month in South Carolina for processing.

Some of the nuclear experts who participated in the meeting also joined Kushner and Witkoff in Oman for nuclear negotiations with Iran before the war.

“These are the top nuclear experts in the U.S. who know how to do the technical things that a deal with Iran will entail,” a U.S. official said.

Why Trump’s War Hasn’t Broken Iran’s Economy

(…) Iran has decades of experience parrying the impact of trade embargoes, economic isolation and war. It’s adopted various methods to circumvent Western sanctions, including layers of shell companies to obscure business transactions and so-called dark fleets of tankers to export its oil.

The country has endured extended periods of low crude exports before, including during President Donald Trump’s first term in office, when he pulled the US out of the international nuclear deal with Iran and reimposed harsh sanctions.

(…) Iran accelerated its oil shipments ahead of the war and earned bumper revenues prior to the blockade due to the jump in oil prices. This should provide a buffer.

The government has implemented protectionist measures to secure the domestic supply of goods. It’s banned the export of many essential items, including all food and agricultural products, as well as some petrochemicals and steel slabs and sheets. The central bank has also said it’s prioritizing the allocation of foreign exchange reserves for the procurement of essential items.

The country has boosted the use of trade routes that don’t rely on the Strait of Hormuz. It’s sent more goods by rail to neighbors such as Pakistan and Afghanistan, while the number of cargo trains going from Xi’an in central China to Tehran has increased. Iran is also leaning more on its northern ports along the Caspian Sea, which have traditionally facilitated trade with Russia.

Iran has had an official policy of “economic resistance” since 2013. This was a doctrine of former Supreme Leader Ayatollah Ali Khamenei, who was killed by Israel in the opening salvo of the war. He wanted Iran to strengthen its domestic production capacity and reduce its reliance on imports to guard against further isolation from the West. There was some progress toward this goal during Trump’s first term, when the disappearance of foreign goods and brands opened the market for Iranian manufacturers. (…)

Hormuz Closure Turns Into a Working-Capital Squeeze for US Corporates

With limited traffic through the Strait over the past three months, supply-chain bottlenecks are rising, delivery times are slowing and inventories are becoming insufficient, forcing companies to rebuild buffers at a time when interest rates higher for longer make carrying more inventory increasingly expensive.

 

Almost 10% of Toronto mortgage holders won’t qualify to refinance next year, BoC says

The central bank’s financial stability report, released late last month, estimates 9 per cent of borrowers in the Toronto region could not qualify to refinance their loans next year. Nationally, the bank estimates the level to be 4 per cent.

That’s because these borrowers’ property values have fallen significantly since they got their mortgages. These borrowers will not be able to take equity out of their homes to pay down debts – one way of refinancing a loan.

They also will not be able to refinance their loans in other ways, such as lengthening the time it takes to pay back the loan or simply renewing a mortgage with a different lender.

If borrowers are not able to pursue these options, that may eventually lead them to miss mortgage payments. (…)

Across the country, real estate prices have been declining for the past four years. Some of the biggest drops have been in the Toronto region, where the typical home price is 33 per cent lower than peak pricing in March, 2022. (…)

If home prices were to drop by another 10 per cent from current levels, more borrowers would not be able to refinance their loans. In the Toronto area, that share would rise to 12 per cent, while the percentage would climb to 7 per cent nationally, according to the report. (…)

This chart plots US home prices in certain areas all indexed to the Q2’22 peak.

Miami homeowners are up 33% since but all others are about flat except Austin area owners, 12% underwater.

But condo owners have worst problems as Wolfstreet.com details:

(…) The price drops are getting relentlessly steeper: In 24 bigger markets, prices of mid-tier condos through April have dropped by 15% to 33% from their respective peaks between 2021 and 2024.

In 2 of the cities, prices of mid-tier condos dropped by over 30%. In five other markets, prices dropped by 20% to 28%. In another 3 cities, prices dropped by 19%. These are starting to be substantial declines over a multiyear period.

In several of these markets, condo prices have now dropped below their peaks of Housing Bubble 1 in 2006/2007 and are back where they’d been 20 years ago. In a few other markets, prices have dropped close to their peaks of Housing Bubble 1.

Elon Musk, the Contradictions of Indexing and IPOxia

By John Authers (my emphasis)

The IPO of Elon Musk’s rockets-to-Twitter-to-Grok conglomerate Space Exploration Technologies Corp. is almost upon us, and it’s a huge deal. There’s not much to add to the debate over one of the most consequential and controversial market flotations of all time, but it does seem to have performed a valuable service of shining a light on the internal contradictions of passive investing.

It’s hard to be meaningfully passive when you’re more than half the market (as Rob Arnott of Research Affiliates pointed out):

As of last week, there is now a $1 trillion exchange-traded fund, and as Apollo Group’s Torsten Slok shows, there are now more ETFs than stocks. (…)

Nasdaq decided it would relax its prior rules requiring an IPO to wait until the annual December reconstitution before it could be included in the Nasdaq 100. There will now be quarterly reconstitutions, with a fast-track for companies whose total market cap (not their float) would put them in the top 40 of the index, to enter after seven trading days. That should mean that SpaceX will be in the Nasdaq 100, tracked by the QQQ ETF, by the end of June. It also means a huge extra source of demand for their shares, at whatever price they’ve reached.

But S&P DowJones Indices on Friday announced that it will keep its existing IPO rules, requiring them to trade for a year before they can join the S&P 500. OpenAI and Anthropic won’t be in the S&P until late 2027. SpaceX might wait longer, because S&P also requires new members to be making a profit, which it has yet to do.

S&P did relax rules to allow swift entry to its total market indexes. So “passive” managers are giving their clients an active choice: the Nasdaq 100 or a total-market index if you want to dive straight in to this year’s IPOs, and the S&P 500 if you’d rather wait until they’re established as public companies.

S&P’s decision is the crucial one. The S&P 500 is the most widely followed index, tracked by both of the two largest ETFs. It has long had a culture of trying to produce indexes that people will want to track, rather than measures of more academic interest.

The S&P 600 small-cap index, a rival to the better-known Russell 2000, illustrates the difference. The Russell is based strictly on market cap. S&P imposes requirements that companies have turned a profit before they’re included. Both contain useful information. But S&P’s is the superior investment, because it performs slightly better. Over years, that difference compounds:

S&P should be thanked for its decision, which ought to mute some of the potential excesses of demand. For the longer term, though, there will still be plenty of involuntary demand for SpaceX. The passive industry must deal with the fact that its investors have just learned that their investments cannot be truly passive.

Let’s call it “passive aggressive”.

Rob Arnott in the FT (my emphasis)

(…) Indexing is already reshaping markets. To borrow the old American Express slogan, “membership has its privileges”. Inclusion in a major index creates a vast pool of valuation-indifferent buyers. Index funds must buy additions and sell deletions regardless of price. Ongoing inflows create a constant stream of buyers for member stocks.

I estimate about $14tn tracks the S&P 500 directly, excluding benchmarked assets. Another $4tn tracks the Nasdaq and the Russell 1000. With the US stock market worth roughly about $80tn, these funds collectively own nearly one-quarter of the market and an even larger share of the stocks in their respective benchmarks.

Consider a thought experiment. Suppose SpaceX sells 4 per cent of the company in an IPO at a $2tn valuation — a capitalisation that would be equivalent to about 2.5 per cent of the US stock market. If the S&P, Nasdaq and Russell committees immediately added the stock at full market-value weight, I calculate index funds would need to buy more than $500bn of SpaceX shares, while only about $80bn would be available.

In theory, the market-clearing price would be infinite. That breaks the capital markets.

Of course, this is not how indices work. New additions are generally based on the float, the amount of shares available to public investors. Under that approach, index funds might need to buy up to $30bn of stock from an $80bn float.

That rocks the markets but does not break them. Markets can readily absorb a giant IPO.

After absorption, index membership can create a durable valuation advantage. Compare the S&P 500 with the “Next 500”, the stocks ranked 501 to 1,000 by market capitalisation. Since 2012, the S&P 500 has dramatically outperformed them.

The conventional narrative is straightforward: the S&P 500 contains America’s best businesses, while the rest of the market offers laggards and perpetual disappointments.

The fundamentals tell a different story when looking at cash flow rather than earnings under GAAP accounting standards as a cleaner measure of business performance. Over the past quarter century, S&P 500’s cash flow has grown about 3 per cent per year slower than the Next 500.

The implication is striking. Over the past dozen years, the biggest companies have won in the stock market not because their businesses grew faster, but because investors paid more for them. Their valuation premium relative to the Next 500 has risen to roughly 80 per cent, even as profit growth lagged.

SpaceX and the other giant IPOs will probably reinforce the advantages of index membership and widen the valuation gap between index constituents and the companies left outside the club.

But unless cash-flow growth for the largest companies reverses course and begins to exceed that of the next tier of firms, investors should earn better long-term returns from the non-members than from the members.

China, New Zealand Hold Trade Talks to Deepen Cooperation

China and New Zealand held a bilateral trade commission meeting in Beijing on Friday, where officials exchanged views on deepening economic ties and cooperation in regional and multilateral frameworks. (…)

Diabetes researchers ejected from conference after criticizing White House

Five diabetes researchers, including the editor of a leading journal, were removed from the field’s premier conference in New Orleans on Friday morning, after handing out copies of an editorial criticizing the Trump administration’s “dismantling” of the biomedical research enterprise.

The incident occurred outside a conference hall where a keynote address had originally been scheduled to be given by Jay Bhattacharya, director of the National Institutes of Health, at a gathering organized by the American Diabetes Association. A group of about 10 researchers, including some of the field’s leaders, were quietly handing out printouts of an editorial published in Diabetes Care, a journal the association publishes, according to three of the participants. Security and police told them to leave at the direction of event organizers and confiscated some of their lanyards and ability to attend the conference. (…)

Bhattacharya had been scheduled to give the keynote address, but it was instead given by Richard Woychik, a senior adviser to the NIH director for the agency’s Make America Healthy Again strategy. (…)

Hirsch described the situation as “censorship” by the scientific society — of leaders in the diabetes field who were sharing an editorial that pointed out that the NIH’s stewardship of biomedical research was having a destructive effect on diabetes research.

“It’s going to take generations to fix where we are now,” Hirsch said. (…)

• Hospitals See Diseases Resurge as Vaccinations Decline

Doctors around the country say they are seeing more cases of serious, sometimes life-threatening illnesses that vaccines have long kept at bay, including whooping cough and bacterial infections that can cause pneumonia or meningitis.

The concern among doctors comes on the heels of a resurgence of measles nationwide, fueled by distrust in vaccines that grew during the Covid-19 pandemic, and that Health Secretary Robert F. Kennedy Jr. and President Trump have amplified. Public health experts have long seen measles as a harbinger: Because it is so exceptionally contagious, it can be the first disease to spike as vaccination rates broadly decline, and a sign of more to come. (…)

Several doctors also said they had seen a growing number of adults refuse tetanus shots for themselves, and parents refuse them for their children, after injuries such as dog bites or lacerations from dirty objects. Roughly 1 in 10 people infected with tetanus die; a full course of vaccination is very effective at preventing infection. (…)

“It just feels like you’re a tiny little boat with a giant tidal wave coming at you,” said Dr. Erin Charles, a regional pediatric hospitalist at Seattle Children’s Hospital. (…)

Dr. Rosenbaum said she had been telling the medical residents training under her that they might have to learn together how to treat illnesses she’d never encountered during her own training because of vaccines.

For many such illnesses, “it’s going to be probably a low uptick,” she said. “Until it’s very fast.”

• For the full year of 2025, a total of 2,288 confirmed measles cases were reported in the United States. As of June 4, 2026, 2,030 confirmed measles cases were reported in the United States. CDC is aware of probable measles cases being reported by jurisdictions. However, the data here only includes confirmed cases jurisdictions have notified to CDC. The CDC reports that 92% of measles cases this year involve unvaccinated individuals or those with unknown vaccination status.
• Whooping cough is another disease that is making a comeback. The CDC reported 28,000 whooping cough cases in 2025, compared with about 7,000 in 2023 and about 3,000 in 2022.

Employment Is Heating Up, But So Is Inflation

Ed Yardeni:

As we’ve been predicting in recent months, labor market conditions are improving, while inflationary pressures remain elevated. We expect the FOMC will shift to a tightening bias at the June meeting of the Fed’s policy-setting committee and will probably hike the federal funds rate in July if current trends persist.

The prices-paid component of the NM-PMI survey rose to 71.3 in May, the highest since August 2022. The prices-paid index for the M-PMI was even higher at 82.1 last month (chart). Both confirm that inflationary pressures remain significant due to the energy shock, supply chain disruptions, and tariffs.

The Weekly Economic Index, which aggregates 10 high-frequency daily and weekly data series to track real-time US economic activity, rose to 3.2% for the week of May 29, its highest reading since August 2022. This suggests that real GDP is growing around 3% y/y.

We are also counting on productivity growth to keep a lid on unit labor costs inflation (ULC). So far, so good. Today’s revisions for Q1 reduced the growth rates of both productivity and hourly compensation. Productivity is still up nicely at 2.8% y/y, while hourly compensation increased 3.3%. So ULC inflation is now down to just 0.5% y/y during Q1.

This measure of the underlying inflation rate in the labor market is providing a strong disinflationary offset to the inflationary energy shock from the war. ULC inflation rose sharply during 2021 and 2022.

Ed then surprises with this: “The FOMC should pivot toward tightening monetary policy to avert a renewed wage-price spiral and to cool speculative excesses in the stock market.”

The Margin Inflection

From Goldman Sachs’ Eurozone team:

YTD, the increase in consensus forward EPS estimates has outpaced the STOXX 600 price gain. However, this masks a more fragile underlying picture. Excluding Commodity producers, earnings have been revised down year to date. Revenues have remained broadly stable on resilient global nominal growth, leaving margins as the main driver of negative revisions.

Survey data points to a clear inflection in margin momentum. Margins are driven by changes in growth, not its level, and the Composite PMI has just recorded its first back-to-back contraction since 2024. At the same time, pricing dynamics are deteriorating: PMI Input Prices are rising faster than Output Prices, pushing the spread, a proxy for margin pressure, close to historically low levels

 

The market is reassessing pricing power. Investors are no longer rewarding margin levels mechanically. The key question is sustainability. The premium for high-margin companies has declined.

Historically, firms with net margins above 11% traded at around a 30% P/E premium to low-margin peers, reflecting pricing power and competitive moats. That premium expanded post-GFC and again post-COVID.

It is now compressing and sits below its 10-year average, signalling a shift in how profitability is priced. The adjustment is driven by multiple compression at the top end rather than a re-rating lower down.

Pricing power dispersion still has further to run. The “strong pricing power” cohort, where both COGS and margin estimates are being revised up since the start of the Middle East conflict, continues to benefit from positive EPS revisions.

Year to date, 2026 EPS has been upgraded by 2% for these names, while “weak pricing power” companies, defined by rising COGS and falling margins, have seen downgrades of 10%, a revision spread of 12pp.

Wondering about the US?

Manufacturing PM prices:

Manufacturing and services:

Goldman Sachs’ US team:

The war put upward pressure on input costs and downward pressure on company margins. Our company price announcement tracker—which captures both prices paid and received—increased to its highest level since late 2023.

When discussing higher prices, companies most frequently mentioned the impact of higher oil prices but also noted increases in the costs of shipping, resin-based materials, and computer memory.

Companies expect higher input costs to put downward pressure on margins in Q2: analysts revised their margin expectations—a proxy for corporate guidance—down the most in the sectors for which our price announcement tracker increased the most.

Meanwhile

Data: Financial Modeling Prep; Chart: Noah Bressner/Axios

The K economy and the two-speed equity market.

Let’s not forget private markets as ADG reports. Declining margins can hit broadly.

Swinging Doors

Another day, another gate: Blackstone will accommodate only half the $4.5 billion in redemption requests logged for its flagship, $45 billion (exclusive of leverage) BCRED private credit vehicle during the second quarter liquidity window, the firm relayed in a Thursday securities filing.

The world’s largest alternative asset manager will stick with its prevailing 5% quarterly ceiling after honoring all 7.9% of withdrawals requested during the prior period. Blackstone’s March move left peers “frustrated” per the Financial Times, as the accommodation set an unwelcome precedent for other semi-liquid fund managers struggling with rising redemption pressures.

There’s a lot of that going around. On Tuesday, private credit manager Cliffwater disclosed that redemption requests in its $31 billion Corporate Lending Fund reached 17% of assets during the second quarter, up from 14% during the prior period. Cliffwater likewise applied its preexisting 5% limit to cash outflows this time after permitting 7% redemptions in the first quarter.

Those growing exits queues accompany deteriorating fundamentals across the direct lending domain. Downward credit estimates among Moody’s-assessed middle market firms outpaced upgrades at more than a 5:1 clip last year, helping push the share of triple-C-rated credits within that category to 34% from 15% in 2022.

The share of U.S. private credit borrowers now servicing their obligations with additional debt rather than cash (i.e., payment-in-kind) reached 11% in the fourth quarter per Lincoln International, up from 5.1% in March 2022. Over the same period, the ratio of so-called bad PIK, or borrowers who needed to amend loan terms to do so, rose to 6.4% from 2.3%.  

“There’s a lot going on beneath the surface,” PIMCO chief investment officer Daniel Ivascyn told Bloomberg this morning, predicting that credit markets have entered their first sustained default cycle in years even as benchmark high-grade and junk spreads each remain near their tightest levels in more than a decade.

Suzanne Gibbons, head of research at Davidson Kempner, added that some capital structures established during the mini-rate era of 2020 and 2021 “don’t make sense today.”

Investors positioned lower on the repayment hierarchy are all ears. Yesterday, Swiss private equity firm Partners Group announced it has capped withdrawals at its flagship, $8.6 billion Europe-focused vehicle at 5% after fielding second quarter redemption requests equivalent to 9.8% of assets during the second quarter, with the fund remaining gated in June and the 5% limit set to remain in force during the third quarter. 

“You do see investors broadly, after [spurring] redemption pressure within private credit for a number of quarters, now starting to redeem other asset classes,” commented CEO David Layton on Bloomberg Television Wednesday.

What happens in the Alps stays in the Alps? As PitchBook noted Tuesday, “a surge in loan defaults by sponsor-backed businesses would be critical for lenders. . . but potentially catastrophic for funds that hold shares in those businesses, as they are last in line to recover their money in the event of bankruptcy.”

“The Little Excursion”

Fitch Cuts Global Growth Outlook in Latest Downgrade to Capture Mideast Impact The ratings firm now expects the world economy to grow 2.4% this year

The ratings firm now expects the world economy to grow 2.4% this year, down 0.2 percentage points from its previous projection, citing the inflationary impact of higher energy costs and ongoing supply disruptions.

“Forecast cuts have been widespread as higher inflation squeezes real wages, dampens consumption and raises companies’ input costs,” Fitch economists said in a report. (…)

Under a more adverse scenario in which oil averages $100 barrel in 2026, equity prices fall by 10% and credit conditions tighten, growth in the U.S. could fall to just 0.8% over the next 12 months to 0.3% in the eurozone and 3.4% in China, it said.

In its baseline forecast, Fitch expects the U.S. economy to grow 1.9% and the eurozone economy 0.9%, both lower than previously projected. China’s growth forecast, however, was raised to 4.6% after a stronger-than-expected first quarter and resilience in export performance. (…)

The world is in the midst of “a very pronounced boom in global spending on IT and that is cushioning the impact on activity in the near term, particularly in Asia,” said Brian Coulton, chief economist at Fitch.

The AI buildout has fueled relentless appetite for chips and related products, providing a tailwind for tech-exporting economies like Taiwan and South Korea.

But while that is driving record gains in equities markets, bolstering corporate profits and buoying the broader economy, Fitch warned that a material slowdown in global growth could stop the momentum in its tracks.

Global Food Prices Steady Near Highest Level in Three Years

(…) The Iran war has choked flows of fuels and fertilizers through the Strait of Hormuz, sending prices of key farm inputs soaring. That’s pushed up the cost of growing corn, rice and other foodstuffs, while some of the world’s top growers are already warning of lower yields and production. (…)

The FAO warned last month the closure of the Strait of Hormuz is the start of a “systemic agrifood shock” that could spur a major food price crisis within the next six to 12 months.

“Such crises tend to be a slow burn in their effects,” said Tim Benton, professor at Leeds University in the UK and an expert in food security. “Raised fertilizer prices today will affect future harvests and supply. Logistical delays and increased costs will feed through into food prices in store more toward the end of the year.” (…)

In the US, where grocery prices already rose by the most in almost four years in April, economists expect the war to add to price pressures into 2027. In Europe, wallets will be hit by Christmas, Rabobank said, and in the UK, more than four-fifths of food and drinks producers plan to raise prices, according to a survey from the Food and Drink Federation.

“The next year to 18 months will be crucial in terms of the likelihood of significant food price inflation,” Benton said by text message.

The food security situation can be further complicated by the weather. A likely ‘super’ El Nino, a cyclical weather phenomenon that can drive flooding in one continent and drought in another, could hurt crops.

BOE Survey Finds Businesses Expect to Raise Prices at Faster Rate The survey suggests businesses are reluctant to respond if workers demand higher wages to cover the costs of higher energy bills

U.K. businesses polled in May expected to raise their prices at a faster rate, but wage increases were seen slowing, according to a Bank of England survey released Friday.

Some 2,086 chief financial officers were questioned between May 8 and 22, with energy prices having jumped after the attacks on Iran in late February and remained high since.

The survey found that businesses expected the prices they charge to rise by 4% over the coming 12 months, an increase from the 3.8% expected in April. Businesses reported that the prices they charge increased by 3.8% in the year to May.

(…) the survey suggests that businesses are reluctant to respond if workers demand higher wages to cover the costs of higher energy bills. The CFOs expected the wages they pay to rise by 3.4% over the coming 12 months, unchanged from April.

In the year to May, they reported that wages rose by 4.3%, and are therefore expecting a significant slowdown over the coming 12 months. (…)

In response to a separate line of questioning focusing on the impact of the conflict in the Middle East, 57% of businesses said they intend to raise their prices as a result, while just 5% expected to lower prices.

However, some 68% of businesses expected their profit margins to be lower as a result of the war, an indication that they don’t expect price rises to fully cover the increase in their costs. (…)

In the USA:

Source: Department of Commerce, Goldman Sachs Global Investment Research

Taiwan Inflation Tops Central Bank Alert Level on Oil Prices

Mitsubishi UFJ AM Says BOJ May Need Jumbo Rate Hike to Boost Yen

Mitsubishi UFJ Asset Management said a larger or out-of-cycle Bank of Japan rate hike can’t be ruled out, warning that an expected increase this month may not be enough to prevent further declines in the yen and Japanese government bonds.

“To stop yen weakness, 25 basis points is not enough,” said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management, one of the nation’s biggest investment firms. “If inflation starts to accelerate, there’s a chance that the BOJ could hike by 50 or 75 basis points at one meeting.” (…)

A rate increase of more than a quarter percentage point, or a move outside the BOJ’s scheduled policy meetings, would come as a major surprise to economists and investors. The last time the BOJ raised its policy rate by more than 25 basis points was in August 1990, when it delivered a 75-basis-point hike during Japan’s asset bubble. The central bank has not raised rates outside scheduled meetings since introducing a fixed policy meeting calendar under the BOJ Law that took effect in 1998.

But Mitsubishi UFJ’s view underscores growing concern that the BOJ may need to surprise markets to meaningfully influence the nation’s currency and bonds.

Mizuho Financial Group Inc.’s chief executive officer Masahiro Kihara said last week that the BOJ might be better off considering an outsized interest-rate increase to combat inflation. Nomura strategists also argued that for investors to shift to a more bullish stance on the yen, Governor Kazuo Ueda would need to signal the possibility that the BOJ may accelerate the pace of its tightening cycle or offer some indication that a one-shot 50-basis-point hike could be on the table at some point in the future.

Amir Anvarzadeh, strategist at Asymmetric Advisors who has covered Japan markets for 37 years, said that the BOJ is “years behind the curve.”

“Japan’s currency crisis is brewing,” he said. “If the BOJ doesn’t raise rates in its next meeting or if it doesn’t raise rates by say 50 basis points, I think the yen is toast and interventions will continue to be futile.” (…)

ECB to Hike Twice With Inflation Above Comfort Zone, Poll Shows

The European Central Bank will respond to the Iran war by raising interest rates twice this year before them keeping steady for longer than previously thought, economists say.

A Bloomberg survey conducted May 29-June 3 shows that all respondents but one anticipate a quarter-point hike at next week’s meeting, with most of them seeing another such step before the end of the year. That would bring the deposit rate to 2.5%. (…)

Euro-area consumer price-growth jumped to 3.2% from 1.9% over the first three months of the war, and is likely to accelerate further. That’s mainly due to direct effects from the surge in energy costs, but policymakers worry that such pressures could increasingly spill over into broader inflation via wages and corporate price-setting.

“The ECB will sell the hike as defending credibility,” said Arne Petimezas, head of research at AFS Interest. “With core inflation slightly above target before the war, it has no choice anyway but to hike.” (…)

Hawkish Executive Board member Isabel Schnabel this week warned that the risk of a de-anchoring of inflation expectations is rising. But three-quarters of respondents in the survey so far don’t see any evidence of such a development.

They do agree with the assessments of Schnabel and Chief Economist Philip Lane that the ripple effects of the war will be felt for quite some time, even after a peace deal is reached. Seventy-five percent of respondents said that could be the case for six months or even longer.

Speaking of credibility:

Musk Leaves Investors Starstruck at Dimon’s SpaceX Extravaganza

Elon Musk can still enchant investors with his vision of the future.

Any questions about SpaceX’s record-breaking initial public offering — be it about the valuation, the company’s trajectory or technical execution — were brushed aside as the retail marketing for the deal got under way. Smitten with the world’s richest man and lauding his character, many participants at an investor event hosted by Jamie Dimon at JPMorgan Chase’s headquarters chose to focus on the big picture.

“It was an epic event,” said Sidd Pagidipati, founder and chairman of Ayon Capital. “This company I think will be the biggest, largest, most iconic company in human civilization.” (…)

Some research analysts are telling would-be buyers that their models show 100 times revenue growth for SpaceX’s AI division by the end of the decade, to help justify the targeted valuation of $1.8 trillion. For the investors emerging from the JPMorgan event, those numbers sounded entirely justified.

It’s “not an outrageous valuation for the company,” said Dylan Hixon, president of Arden Road Investments, who’s gained exposure to the company over the years through venture funds and Special Purpose Banks. He estimates SpaceX comprises around 20% of their entire portfolio, and says they will continue to invest after the IPO. “This is a generational company.”

Several investors Bloomberg spoke to said they had not read the prospectus, which details ambitions like building a colony on Mars and a $28.5 trillion total addressable market. But Musk’s chat with Dimon, in which the billionaire detailed his vision for big ideas like space travel, vacations on the Moon and a Mars colony, swept the enthusiastic crowd along.

“He’s very prescient and a futurist. I’m a believer in what he does” Oliver Grace, chief executive officer of Grace Family Office, said in an interview. Grace said the event shored up his confidence because it showed “a lot of very serious people backing his venture.”

Ronald Baron, an ardent SpaceX bull and founder of Baron Capital, which manages nearly $50 billion in assets, intends to invest a billion dollars more in the company after it goes public — on top of its already over $15 billion stake in the company. The Baron Partners fund has about 33% exposure to SpaceX and more than 20% to another Musk venture, Tesla Inc., according to data compiled by Bloomberg.

“This guy has a dream, plus he’s a really good man with a great heart and brilliant guy, and he does things for humanity, not just for himself,” Baron told Bloomberg. He envisions that the SpaceX businesses will eventually generate “trillions and trillions and trillions of dollars a year of revenues.”

Is it me or are all the quotes above from people talking their book?

SpaceX, Other Mega IPOs Denied Fast Index Entry by S&P

S&P Dow Jones Indices will keep its existing eligibility requirements for benchmarks including the S&P 500, closing the door to fast entry for big tech IPOs like SpaceX and delaying billions of dollars in flows from passive funds.

The index provider in a press release Thursday said it will not shorten the 12-month seasoning period for newly public companies it currently has or waive existing profitability and public-float requirements based on a company’s size, diverging from a broader industry shift embraced by rivals Nasdaq Inc. and FTSE Russell.

For new listings like Elon Musk’s SpaceX, the denial means they won’t be greeted by a wall of demand from funds that track the S&P 500. Their fast inclusion in the benchmark would have led to about $14 billion in forced passive buying for SpaceX, more than $8 billion for OpenAI and about $4.6 billion for Anthropic PBC, according to Bloomberg Intelligence estimates.

The outcome means SpaceX, which is preparing what could become the largest IPO in history, would not be eligible for inclusion in the S&P 500 until at least one year after its listing. The company would also need to satisfy the index’s existing requirements for profitability and public float.

“I am genuinely surprised,” said James Seyffart, ETF analyst at Bloomberg Intelligence. “But S&P is the market leader and they can buck the trend.”

Nasdaq changed its rules recently so Space Exploration Technologies Corp., as the company is formally known, can join the Nasdaq 100 Index, a cohort of the largest non-financial companies listed on its exchange, in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days.

The S&P 500 is the most heavily tracked equity benchmark in the world. About $7.5 trillion in passively managed funds follow it and another $3.4 trillion in actively managed assets are benchmarked against it, according to Bloomberg Intelligence data.

More broadly, passive, domestic equity index mutual and exchange-traded funds in the US held roughly $14.4 trillion in assets at the end of April, according to Investment Company Institute data, underscoring the scale of capital that generally cannot buy a stock until it enters a benchmark index. By comparison, active funds amounted to $8.2 trillion. (…)

“The S&P Dow Jones index committee deserves credit for maintaining the standards that made the S&P 500 the U.S. equity market benchmark.”

FT Alphaville:

(…) We’ve now got quite a variety of approaches across index providers.

• MSCI and FTSE Global already had fast-tracking for mega-IPOs using free-float weights after 10 and five trading days respectively.
• FTSE Russell switched methodology on their Russell indices to bring them into line with the FTSE Global rule book a couple of weeks ago.
• Morningstar CRSP has dropped their minimum free-float requirement to admit SpaceX and the rest of the likely floaters after only five days.
• And Nasdaq — they’ve cleared a path for fast-track index inclusion at a three-times weight, but only after 15 days.

To make this all easier on the eye and brain, we’ve recoloured our top index chart showing where this leaves money benchmarked and indexed to the largest individual stock indices:

All this got us wondering: is passive the new active?

The Wall Street Mania Pushing Knicks Tickets to $176,000

(…) Getting close to the action at such live events confers status, said Jaclyn Sienna India, founder of the concierge agency Sienna Charles. Think Taylor Swift madness for finance bros, with Jalen Brunson jerseys instead of friendship bracelets. A ticket is a rare opportunity to mingle in VIP areas over sushi rolls, not to mention fodder for Instagram posts or a chance to appear on television.

India’s firm arranges travel and other experiences for dozens of members—most of them in private equity—with net worths ranging from tens of millions to billions. The lower end of that spectrum tends to shell out more “because they have the most to prove,” she said. Her team already booked Knicks tickets as expensive as $176,000 apiece.

“If you’re not there, you’re a loser,” she said of the psychology behind such purchases. (…)

AI in action:

The quote you shared captures the timeless psychology of conspicuous consumption, status-seeking, and FOMO (fear of missing out) among the ultra-wealthy. Throughout history, whenever massive economic booms created vast sums of new wealth, the elite turned to staggering extravagance to prove their social standing.

Ancient Rome’s Patrician Era (Late Republic / Early Empire): Roman conquests flooded the capital with unimaginable wealth, land, and enslaved labor, creating an ultra-rich class of senators and generals. Wealthy Romans like Crassus and Lucullus used financial excess to buy political influence and social envy. Lucullus was famous for throwing banquets that cost the modern equivalent of hundreds of thousands of dollars for a single night, featuring exotic birds, sea monsters, and mountains of food. The concept of luxuria became a tool; if a politician did not host grand games or build massive villas, they lost their social standing.

Extreme wealth inequality stripped the working class of land, breaking Roman political norms. This polarization fueled a century of bloody civil wars, slave revolts, and political assassinations that ultimately destroyed the Roman Republic.

The Gilded Age (Late 19th Century United States): The rapid expansion of railroads, steel, and finance created America’s first multi-millionaires (like the Vanderbilts, Astors, and Rockefellers). Wealthy tycoons hosted competitive, hyper-exclusive parties to secure their spot in high society. A famous example was the 1897 Bradley-Martin Ball at the Waldorf-Astoria Hotel. The hosts spent the modern equivalent of millions on a single night, transforming the hotel into a replica of Versailles. Guests wore costumes dripping in real jewels and historical royal heirlooms just to signal they belonged in the elite “Four Hundred” social circle.

The Panic of 1893 shattered the economy, sparking a deep four-year depression. Public outrage over wealth inequality triggered the Progressive Era, bringing trust-busting laws, worker protections, and the introduction of the federal income tax.

The Roaring Twenties (1920s Western World): A booming stock market, industrial mass production, and easy credit fueled a decade of unbridled economic optimism. This era birthed the exact “if you’re not there, you’re a loser” mentality dramatized in The Great Gatsby. The newly rich threw lavish, multi-day estate parties, bought fleets of custom luxury cars, and traveled on opulent transatlantic ocean liners. Buying expensive art, funding underground speakeasies, and flaunting wealth during Prohibition became the ultimate status symbol for Wall Street’s sudden winners.

The infamous Wall Street Crash of 1929 wiped out billions of dollars in wealth in days. It plunged the global economy into the decade-long Great Depression, replacing lavish parties with breadlines and mass unemployment.

The “Greed is Good” Era (1980s Wall Street): Financial deregulation, corporate mergers, junk bonds, and a massive bull market minted a new class of hyper-aggressive investment bankers and corporate raiders. Much like today’s private equity boom, the 1980s Wall Street elite used wealth as a scorecard. This era was defined by six-figure corporate entertainment tabs, massive penthouses in Manhattan, and ostentatious displays of luxury. Memorably, corporate executive Saul Steinberg threw a legendary 50th birthday party in 1989 that featured living tableaux of Flemish paintings and cost millions—acting as a pure display of financial dominance.

The Dot-Com Bubble (Late 1990s Silicon Valley): The meteoric rise of the internet created overnight paper billionaires and multi-millionaires, many of whom were in their 20s and 30s. Young tech founders with “more to prove” engaged in wild spending. Companies with zero profit spent $2 million on single Super Bowl commercials just for bragging rights. Extravagant corporate parties featured performances by massive rock stars, and the newly rich bid up the prices of Silicon Valley real estate, private jets, and luxury sports cars to unprecedented heights before the crash in 2000.

The tech-heavy NASDAQ peaked in March 2000 before losing nearly 80% of its value. Trillions in paper wealth evaporated overnight. Hundreds of internet startups went completely bankrupt, and Silicon Valley faced a harsh multi-year recession.

Financial Market News

• Five Ideas for Reducing Income Inequality

I will not bore you with what economists told the WSJ: yaddi, yaddi, yadda…

But here’s one way the mega-rich are pushing…

The AI boom was the main driver overall for rich people’s wealth last year, says Luca Russignan, global head of Capgemini Research Institute for Financial Services.

The general public may soon get access to those same assets, particularly through mega-IPOs later this year, but likely won’t see the same returns as early-stage investors. (Axios)

Data: Capgemini World Wealth Report. Chart: Emily Peck/Axios

Elon Musk’s SpaceX lines up retail investors for record IPO allocation

SpaceX is preparing the largest retail allocation ever attempted in a megacap IPO, with Elon Musk seeking to reserve as much as a quarter of the company’s $75bn float for individual investors.

According to people familiar with the move, the billionaire chief wants to place small shareholders near the centre of the rocket and satellite group’s ownership from the outset, reflecting Musk’s longstanding preference for retail investors over Wall Street institutions. (…)

The world’s richest man promotes his businesses to 240mn followers on X, while Starship launches have turned the company into one of the world’s most recognisable private groups. In large-cap IPOs, retail buyers have historically received 5 to 10 per cent of the shares on offer. The allocation is significant enough that SpaceX took the unusual step of naming the five online brokerages distributing shares in its prospectus. (…)

“In the past retail participation hasn’t been driven by a lack of demand, it’s been driven by a lack of supply from the issuer,” said Anthony Noto, chief executive of financial super app SoFi. “Retail [has] been somewhat conditioned not to participate because they don’t have access.” (…)

“Retail traders are the new price setters in the market,” Scott Rubner, Citadel Securities’ head of equity and equity derivatives strategy, said in a note this week. 

Many gather on Reddit’s WallStreetBets forum, where recent posts from day traders have swung between fear of being left “holding the bag” as SpaceX insiders cash out and an equal fear of missing the trade entirely.

Musk has good reasons to favor the retail crowd:

Tesla’s forward PE is 191x when Yardeni’s 7 other megacaps’ PEs are below 33x …

… in spite of analysts pegging Tesla’s Long-Term Earnings Growth at 3.7% vs 22.8% for the other 7 megacaps.

Fly Me To Mars

Other inequalities: