“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council

For whatever topics you select (currently: Financial Markets):

Include articles that mention this topic 520

Only articles primarily about this topic 253

Summer Mailbag

Michael Cembalest J.P. Morgan

Date Posted:: July 30, 2025

Michael Cembalest notes that the 10 largest American stocks represent ~ 35% of market capitalization. Earnings are “more or less keeping pace, particularly when measured based on forward earnings estimates.”

Our YUC measure (the young unprofitable company share of total market cap) looks benign. This measure peaked in 2021/2022 with the SPAC boom and was an excellent leading indicator of the rout that was about to happen to low quality stocks. This risk index has fallen since, which is a positive sign for markets. Small cap remains a barren profitability desert (40%+ of small cap companies with negative earnings!) while a falling share of large cap companies have negative earnings. The 10 largest megacap stocks continue to hover at ~35% of market cap, which is an all-time high since 1990. But when looking at the megacap share of total market earnings, they’re more or less keeping pace, particularly when measured based on forward earnings estimates. Tech and TMT valuations are still hovering at the high end of the post-2020 range, ~30x forward earnings expectations. The rest of the market is less aggressively priced, and at 20x forward earnings is priced at the middle of the range since 1990. But these valuations have been creeping up steadily since early 2022.

Takeaways by Macro Roundup^® AI

The young unprofitable company share of total market cap peaked in 2021/2022 during the SPAC boom, served as a leading indicator of the subsequent rout in low-quality stocks, and has since fallen, a positive sign for markets.
More than 40% of small cap companies have negative earnings, while a falling share of large cap companies are unprofitable.
The 10 largest megacap stocks hover at about 35% of market cap, an all-time high since 1990, though their share of total market earnings roughly keeps pace, particularly on forward estimates.

The Stock Market’s Read On The Midterms, In Its Winners And Losers

Jason Furman Econvitals

Date Posted:: November 5, 2026
Is Database:: Database
Is Important:: Important

Furman notes that between election day and Wednesday’s close there were broad-based gains for the solar sector and health companies, particularly those with close ties to the ACA, even though substantial, while less dramatic, Democratic victories in the House and Senate were already priced in. [Note: Today saw technology stocks plunge, pushing the S&P 500 down ~4% and the Nasdaq down ~5%].

The broader stock market rallied the day after Democrats won a sweeping victory in the midterm elections. Perhaps more interesting, and more telling, was the composition, which shows what the market thinks the policy impact of the election will be: health companies (especially ones like Centene, with close ties to the Affordable Care Act) and solar companies were up, while data-center companies and Trump- and Musk-related companies were down. And remember, Democratic victories were already priced in, so this is just the additional increment from greater certainty as well as the larger-than-expected magnitude.

Takeaways by Macro Roundup^® AI

The broader stock market rallied the day after Democrats won a sweeping victory in the midterm elections, and the composition of winners and losers indicates what the market expects the policy impact to be.
Health companies with close ties to the Affordable Care Act, such as Centene, and solar companies rose after the midterms, while data-center companies and Trump- and Musk-related companies fell.
Democratic victories were already priced into the stock market, so the post-election move reflects only the added increment from greater certainty and the larger-than-expected magnitude.

This Time Would Have To Be Very Different. Part II

Hanno Lustig The Two Cents

Date Posted:: November 3, 2026
Is Database:: Database

If the free cash flow of the entire US corporate sector were to hold at its record ~15% share of corporate value added, corporations would return only ~5.3% over the next decade. To earn the historical mean return, FCF would have to keep rising, implying a structural transformation favoring capital at labor’s expense.

At a CAPE of 40.7 US stocks look extremely expensive, and expected returns are low, especially compared to TIPS yields. Plugging in today’s numbers, you back out an expected real return of around 3% over the next decade, compared to a 10-year TIPS yield of 2.6%. Now, instead of an investor holding a single share, we could look at an investor who owns the entire corporate sector, all equity, bonds, and other liabilities. This investor acquired a claim to FCF, the total amount of cash that can be paid out to its owners, including bondholders: gross corporate value added left after paying workers, the government, and investment expenditure. This FCF is now about 15% of corporate value added. Earnings minus FCF is net investment; corporations have invested less. Its FCF yield is 3.26%, vs. 3.21% since 1952. That delivers an approximate real expected return of 5.3%, below what US corporate capital has historically delivered.

Takeaways by Macro Roundup^® AI

Holding the multiple fixed, a 3.26% free cash flow yield plus the Survey of Professional Forecasters’ 4.58% projected nominal GDP growth and 2.5% inflation implies a real expected return of roughly 5.3% on US corporate debt plus equity.
The 5.3% real return assumes free cash flow stays at its record 15% of gross value added indefinitely, and still falls below what US corporate capital has historically delivered.
Earning the historical average return requires the free cash flow share of value added to keep climbing, a bet on a structural transformation of US capitalism favoring capital at the expense of labor.

This Time Would Have To Be Very Different

Hanno Lustig The Two Cents

Date Posted:: October 26, 2026
Is Database:: Database

At 40.7, CAPE is nearing its December 1999 peak of 44.2. For the S&P 500 to beat TIPS over the next decade, today’s near-record P/E multiple must persist for ten years, or real earnings must grow more than 5.8% a year—a pace exceeded in only two decades since 1880: the 1920s and 2010s.

The CAPE is currently trading at 40.7, which is close to an all-time high. You’re paying close to 41 times annual earnings when you buy the S&P 500. The implied earnings yield is only 2.46%. According to AQR, a reasonable estimate for real earnings growth (on a per share basis) is 1.8% per annum. If you plug in today’s numbers, you end up with a real expected return of around 3% per year for U.S. equity. That’s a surprisingly low number. When you compare it to the 10-year TIPS yield of 2.75%, you’re left with a razor-thin equity premium. The stock market will only yield an extra 25 basis points per annum over the next, say, 10 years to compensate you for taking on equity risk. You might think this is a very conservative estimate, but it’s actually not, because we’re implicitly assuming that the CAPE stays at 40.7 over the next 10 years. That’s quite a lofty multiple. Even casual eyeball econometrics suggests that that’s not a great assumption, because the price-earnings ratio tends to revert back to its mean.

Takeaways by Macro Roundup^® AI

The S&P 500’s cyclically adjusted price-earnings ratio stands at 40.7, close to an all-time high, implying an earnings yield of just 2.46% for buyers of the index.
Combining the 2.46% earnings yield with AQR’s estimate of 1.8% annual real per-share earnings growth yields a real expected return of roughly 3% per year for U.S. equity.
Against a 10-year TIPS yield of 2.75%, U.S. equities offer an equity premium of about 25 basis points per year, an estimate that assumes the CAPE stays at 40.7 for a decade despite the price-earnings ratio’s tendency to revert to its mean.

Circularity in AI Shows Up in Token Spending Too

Torsten Slok Apollo

Date Posted:: October 22, 2026
Is Database:: Database

According to Ramp data, 80% of firms in the top 1% of AI spending are VC-backed, compared with just 13% of firms at the median. This suggests that the largest purchasers of AI computing capacity rely heavily on venture capital rather than internally generated earnings.

Ramp data show that 80% of the top 1% of AI spenders are VC-backed, compared with only 13% of the median spender, suggesting that the circularity seen among AI hyperscalers and model providers also extends to token spending, as the startups buying the most compute are paying for it with venture capital rather than organic earnings. If the AI payoff is slow to materialize or never arrives, VC returns would come under pressure, since the capital funding today’s token spending would have little to show for it, and a pullback in venture funding could in turn weaken demand for compute.

Takeaways by Macro Roundup^® AI

Ramp data show 80% of the top 1% of AI spenders are venture-backed, versus 13% of the median spender, suggesting the largest buyers of compute are funding token spending with venture capital rather than organic earnings.
Ramp’s data on the venture backing of the heaviest AI spenders suggest the circularity seen among AI hyperscalers and model providers also extends to token spending.
If the AI payoff is slow to materialize or never arrives, venture capital returns would come under pressure, and a pullback in venture funding could in turn weaken demand for compute.

Revenue Per Worker Is Up. Are Firms Getting a Larger Share?

Jeremy Pearce Federal Reserve Bank of New York

Date Posted:: October 16, 2026
Is Database:: Database

Nonfarm business output per hour grew 2.2% annually between 2019 and 2025, up from 1% in 2010–19. Among public firms, growth in real revenue per worker accelerated from 0.7% to 2.2%. Operating margins rose from 16% to 18% of sales (2.4% annual growth).

A profit margin is profit divided by sales: the share of each sales dollar the firm keeps after paying its costs. The gross margin subtracts the direct cost of production (cost of goods sold), while the operating margin also subtracts overhead (selling, general, and administrative expense, which in Compustat typically includes R&D). If productivity gains were flowing to firms’ profits, margins should show it. Through the 2010s margins were flat: gross margins grew about 0.4% a year from 2010 to 2019, and operating margins were roughly flat. Both then turned up: on average, gross margins went from about 34% of sales in 2019 to 37% in 2025 (1.3% growth per year), and operating margins from 16% to 18% (2.4% growth per year). Part of the gains surfaced with wider profit margins: on a reasonable baseline, the operating margin rose over 2% a year from 2019 to 2025.

Takeaways by Macro Roundup^® AI

Average operating margins rose from about 16% of sales in 2019 to 18% in 2025, growth of 2.4% a year, after being roughly flat through the 2010s.
Average gross margins increased from about 34% of sales in 2019 to 37% in 2025, growth of 1.3% a year, up from about 0.4% a year over 2010–2019.
On a reasonable baseline, the operating margin rose over 2% a year from 2019 to 2025, indicating part of the productivity gains surfaced as wider profit margins.

Earnings Will Be Spectacular. It May Not Be Enough

John Authers Bloomberg

Date Posted:: October 8, 2026
Is Database:: Database

Since 2000, post-tax corporate profits as a share of GDP have trended upward across cyclical setbacks and are now near an all time high, above their 1929 level.

Throughout the 20th century, profit margins were regarded as one of the purest mean-reverting series in the economy. So far this century, however, margins have done nothing but rise. Measured with the National Income and Product Accounts, part of the GDP calculation, profits are currently taking a bigger share of the economy even than on the eve of the Great Crash in 1929. The series comes with a lag, so we can assume the profit share on this basis is comfortably at a record by now.

Takeaways by Macro Roundup^® AI

Corporate profits measured in the National Income and Product Accounts take a larger share of the U.S. economy than on the eve of the 1929 Great Crash.
Profit margins were regarded throughout the 20th century as one of the purest mean-reverting series in the economy, yet so far this century they have done nothing but rise.
The National Income and Product Accounts profits series comes with a lag, so the profit share on this basis can be assumed to be comfortably at a record.

Michael Cembalest notes that the 10 largest American stocks represent ~ 35% of market capitalization. Earnings are “more or less keeping pace, particularly when measured based on forward earnings estimates.”

Is market concentration justified by megacap earnings share?

Takeaways by Macro Roundup® AI

Related Articles:

How do stock winners and losers reveal expected election policy impacts?

Takeaways by Macro Roundup® AI

Related Articles:

Do record corporate cash flows still imply below-average expected stock returns?

Takeaways by Macro Roundup® AI

Related Articles:

At 40.7, CAPE is nearing its December 1999 peak of 44.2. For the S&P 500 to beat TIPS over the next decade, today’s near-record P/E multiple must persist for ten years, or real earnings must grow more than 5.8% a year—a pace exceeded in only two decades since 1880: the 1920s and 2010s.

How much do stock valuations offer over inflation-protected Treasuries?

Takeaways by Macro Roundup® AI

Related Articles:

According to Ramp data, 80% of firms in the top 1% of AI spending are VC-backed, compared with just 13% of firms at the median. This suggests that the largest purchasers of AI computing capacity rely heavily on venture capital rather than internally generated earnings.

Is venture capital funding most corporate AI token spending?

Takeaways by Macro Roundup® AI

Related Articles:

Nonfarm business output per hour grew 2.2% annually between 2019 and 2025, up from 1% in 2010–19. Among public firms, growth in real revenue per worker accelerated from 0.7% to 2.2%. Operating margins rose from 16% to 18% of sales (2.4% annual growth).

Have corporate profit margins risen after a flat decade?

Takeaways by Macro Roundup® AI

Related Articles:

Since 2000, post-tax corporate profits as a share of GDP have trended upward across cyclical setbacks and are now near an all time high, above their 1929 level.

Have corporate profit margins stopped reverting to the mean?

Takeaways by Macro Roundup® AI

Related Articles:

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI

Takeaways by Macro Roundup^® AI