On May 8th, data released by the U.S. Department of Labor showed that non-farm payrolls increased by 115,000 in April, surpassing the expected 55,000. Stimulated by the positive news, the S&P 500 and Nasdaq Composite indices reached new record highs on the 8th, closing at 7,398.93 and 26,247.08 points respectively, up 0.84% and 1.71%. The Dow Jones Industrial Average rose slightly by 0.10%. The yield on the 10-year U.S. Treasury note closed at 4.364%, down 0.68%. WTI crude for June delivery settled at $95.42 per barrel, up 0.64%. Spot gold closed at $4,714.89 per ounce, gaining 0.60%. The U.S. Dollar Index finished at 97.78, down 0.16%.
Currently, key U.S. economic indicators—encompassing employment, stock markets, inflation, and growth—present a divergent picture, with the overall situation remaining outside normal ranges. The Federal Reserve will see a change in leadership at the end of this month, and the incoming chair must proceed cautiously. A rapid shift to interest rate cuts in the short term is unlikely to be placed on the agenda promptly.
Employment Data Faces Growing Scrutiny The employment report is a crucial economic indicator, yet its accuracy is increasingly being questioned. As in previous periods, the healthcare and social assistance sectors provided the most new jobs, while high-paying positions continue to decline, creating a disconnect between reported figures and the actual employment situation.
Firstly, the private sector added 123,000 jobs, but government employment decreased by 8,000. Secondly, healthcare and social assistance added 53,900 jobs, accounting for approximately 44% of the private sector's total gains. Thirdly, the construction of massive data centers boosted (non-residential) construction employment, but the manufacturing sector shed 2,000 jobs. Additionally, the trade, transportation, and utilities sector added 60,000 jobs, while the information and financial activities sectors lost 13,000 and 11,000 jobs respectively. Leisure and hospitality gained 14,000 jobs, whereas professional and business services added only 7,000. Finally, federal and state governments made small reductions in their workforces.
U.S. immigration policies and the impact of AI on high-tech industries are further muddying the employment landscape, distorting market signals. Economic growth data also appears anomalous. The Federal Reserve faces challenges in accurately gauging the true state of the market, a situation that could exact a toll on the U.S. economy.
Five Stocks Holding Up Half the U.S. Stock Market Sector performance within the U.S. stock market remains severely lopsided. Five individual stocks are effectively propping up the S&P 500 index, and this extreme concentration implies a buildup of potential risks. So far this year, the best-performing sectors have been energy, information technology, materials, communication services, industrials, and (following a steep decline) real estate. Looking at the second quarter, information technology, communication services, and consumer discretionary sectors have performed the best, signaling a return to the market's previous configuration.
Since April 1st, the S&P 500 has risen 13.33%; year-to-date, it is up 8.08%. AI investment is once again driving overall U.S. fixed asset investment, particularly in information processing equipment. The chip sector and the five major technology giants have contributed significantly to the S&P 500's performance.
Since April 1st, the S&P Semiconductor Index has surged 59.47%, bringing its year-to-date gain to 76.70%. Although market investors harbor doubts about the profitability prospects of AI investments, and the American public has expressed strong dissatisfaction with rising electricity bills linked to massive data centers, the tech giants have not scaled back their investment plans. Instead, they are rushing to participate in the increasingly intense AI race.
The currently recognized leading tech giants are
Inflation Takes Center Stage, Other Hotspots Cool The situation in the Middle East has persisted for 10 weeks, and the Strait of Hormuz remains under control. As strategic oil reserves approach depletion, the global energy market appears calm on the surface, but underlying tensions are mounting. According to data from the International Energy Agency (IEA), the economies with the highest strategic energy reserves are China (approximately 1.4 billion barrels), the United States (410 million barrels), Japan (260 million barrels), and OECD European members (180 million barrels). Other economies have severely inadequate reserves. Achieving peace in the Middle East is currently the most pressing issue. Many airlines have canceled some flights due to fuel shortages.
Inflation is already reflected in U.S. inflation reports. The Personal Consumption Expenditures (PCE) price index is a key reference for Federal Reserve policy decisions. The latest data shows that core inflation, excluding food and energy, rose from 3.0% in February to 3.2% in March. The headline inflation rate increased from 2.8% to 3.5% over the same period. Energy prices have seen the largest increases, driven by the operation of massive data centers and the complex situation in the Middle East.
Inflation is leading to a more entrenched social stratification in the United States. High-income groups (earning over $125,000) are experiencing improving conditions and have become the main drivers of consumption, while lower-income groups face increasing difficulties. According to data from TransUnion, due to persistent inflation, the average credit card balance for U.S. cardholders is $6,519, up 2.3% from last year. Information from the Federal Reserve Bank of New York also indicates that consumer stratification trends have become increasingly pronounced since 2023. How long can this K-shaped economic reality persist?
In the first quarter, the preliminary estimate for U.S. economic growth was 2.0%. Within this, personal consumption contributed 1.08%, its weakest contribution in the last four quarters. Gross private domestic investment grew by 1.48%, its strongest in four quarters, with information processing equipment investment contributing 0.83%, reflecting the economic pull from AI investment. Due to faster import growth, net exports subtracted 1.3% from growth, the weakest in four quarters. Government investment and consumption grew by 0.73%, with defense spending up 0.48%, the strongest in recent quarters. If defense spending is excluded, U.S. economic growth remains around 1.5%, still in a low-growth mode.
The U.S. employment market, stock market, personal consumption, and private investment all exhibit significant divergence. Excessive concentration implies risk accumulation and suggests that systemic risks will eventually materialize. The job market relies heavily on healthcare and social assistance, while high-paying jobs are disappearing. The stock market is overly dependent on a handful of tech giants for support, a situation that is inherently more harmful than beneficial. The root cause of past financial crises has often been excessive risk concentration, a point echoed by Warren Buffett's recent comments about the market's growing speculative nature (evidenced by the surge in daily options trading). Persistently high inflation forces middle- and low-income groups to rely on side incomes to make ends meet (this is also a key reason for distortions in employment data, as individuals may be double-counted). Private investment is driven by massive data center spending. Economic growth is being propped up by information processing equipment purchases, massive data center construction, and military expenditures.
If the Middle East situation is not resolved quickly through negotiation or remains in a stalemate, its negative economic consequences will soon become apparent. The Consumer Price Index (CPI) report on May 12th and the Producer Price Index (PPI) report on May 13th are likely to show continued increases in personal and business consumption costs. The retail sales report on May 15th will indicate the impact of soaring oil prices on consumer purchasing power. On May 13th, the U.S. Senate is expected to vote on Wash's appointment, with passage anticipated. An unexpected outcome in the vote could trigger market volatility.
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