Jobs Data & Inflation Prints Test Equity Rally's Resilience

Good Morning Investors,

Caution is the mood this morning as investors digest the growing disconnect between economic data and equity euphoria. With a benchmark revision to employment data expected to shave up to a million jobs off official tallies, and two major inflation prints landing midweek, the market's rate-cut optimism is entering a critical stress test.

Beneath today's near-record highs, cracks are forming, from sluggish hiring data to troubling revisions that suggest the labor market may have been weaker than reported for over a year. The S&P 500 remains buoyed by AI infrastructure deals, rising gold prices, and expectations of aggressive Fed action, but this week's data will determine whether the rally has legs or is running on fumes.

Today's newsletter unpacks it all: the data that matters, the mega-deals reshaping industries, and the tactical moves that could define the next market phase.

Let's dive in.

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Futures are mixed ahead of a pivotal day. S&P 500 ($SPY ( ▼ 0.26% )) futures are up 0.1%, Nasdaq 100 ($QQQ ( ▼ 0.38% )) is tracking a 0.2% gain, while Dow ($DIA ( ▼ 0.53% )) futures hover near flat. The market is watching closely as the Bureau of Labor Statistics releases its annual employment benchmark revision, expected to cut 700,000 to 1 million jobs from previous counts.

Gold ($GLD ( ▲ 0.28% )) holds steady near record highs above $2,600, while oil extends gains after OPEC+ output figures came in below expectations. In Japan, the Nikkei closed lower despite briefly topping 44,000, while the Hang Seng Index notched its best close since October 2021. European markets are slightly higher, boosted by deal optimism and more dovish rate expectations.

Tuesday's benchmark revision to US payrolls will shed light on whether the apparent slowdown in job growth is worse than it looks. These annual revisions matter because they reset the baseline for understanding labor market momentum, and a potential downgrade of up to a million jobs would mean the economy created far fewer positions than initially reported over the past year.

The revisions follow a string of soft jobs reports, capped by August's dismal 22,000 gain and deep downward revisions to June. More telling: the NY Fed's consumer survey on Monday showed the lowest confidence in finding new employment post-layoff since the series began 12 years ago, a leading indicator that often foreshadows hard data.

Small business sentiment via the NFIB survey also arrives today, offering further insight into hiring plans at the backbone of the economy.

The market is pricing in a 25 basis point cut, with nearly 30% odds of a 50 basis point move. That hinges heavily on Wednesday's PPI and Thursday's CPI numbers.

Wednesday's Producer Price Index serves as a key preview - producer costs often flow through to consumer prices with a 1-2 month lag. With tariff impacts and sticky services inflation muddying the waters, any upside surprise could derail the jumbo cut narrative and reset Fed expectations.

Watch for: Core CPI above 0.3% monthly would likely kill 50bp cut hopes.

The AI arms race hit another level as Nebius ($NBIS ( ▲ 5.71% )) secured a five-year, $17.4 billion GPU infrastructure contract with Microsoft, pushing its shares up 50% in premarket trading. The deal includes exclusive access to capacity in a new New Jersey data center, and the total value could rise to $19.4 billion.

This validates the infrastructure-focused model and highlights just how capital-intensive AI compute has become. The long-term partnership approach is emerging as the preferred strategy among hyperscalers looking to lock in GPU capacity for years ahead, rather than competing in spot markets.

SpaceX signed a $17 billion deal to acquire wireless spectrum licenses from EchoStar, marking a seismic shift in the company's direct-to-cell ambitions for Starlink. Beyond $8.5 billion in cash and $8.5 billion in stock, SpaceX agreed to cover $2 billion in EchoStar's interest payments.

The implications are massive: SpaceX now controls its own wireless backbone and no longer relies on traditional carriers like T-Mobile for partnerships. EchoStar shares soared 20% yesterday and continue rising today, while legacy wireless players AT&T, Verizon, and T-Mobile underperformed as the market digests this new competitive threat.

Alphabet ($GOOGL ( ▼ 0.16% )) continues to be our top large-cap tech pick, and recent performance validates this thesis. The stock rose 8% after last week's antitrust ruling avoided a Chrome divestiture, but the real story lies deeper.

Google's dominance in commercial-intent search, the most monetizable segment, remains unshaken. Surveys show Google Search has retained and even grown share in ecommerce-focused searches, particularly among Gen Z users, surpassing Amazon. At just 22x forward earnings, with YouTube, Cloud, and Waymo all contributing to high-teens EPS growth, the $250 target looks increasingly achievable.

Eightco ($OCTO ( ▲ 0.82% )) Holdings surged nearly 3,000% on Monday after announcing a $250 million Worldcoin treasury strategy. With tech analyst Dan Ives joining as Chairman, Eightco becomes the latest micro-cap to pivot its balance sheet into digital assets, echoing Michael Saylor's MicroStrategy playbook.

With labor data weakening and inflation data pending, markets are pricing in three consecutive rate cuts starting in September. The only question is magnitude.

A 50 basis point move is no longer unthinkable, but it carries risks. A jumbo cut could backfire if markets interpret it as panic rather than prudence, potentially reigniting inflation fears or undermining confidence in the Fed's measured approach. Chair Powell's framing will be just as critical as the decision itself.

Key insight: Bad economic news driving good market news only works if the Fed can credibly claim control over both sides of its mandate.

The rotation into small and mid-cap equities is gaining momentum, with the Russell 2000 outperforming large caps over the past month. Technology infrastructure, healthcare innovation, and domestic-focused industrials are leading the charge as lower rates boost growth multiples for smaller companies.

Oracle reports after the bell today, offering a key checkpoint for AI-driven cloud spending. Last quarter's 13% post-earnings jump was driven by data center optimism, and with recent infrastructure deals validating the theme, expectations remain elevated.

Other notable reports: Synopsys, GameStop, SailPoint, Rubrik.

This week will separate signal from noise in the current bull market narrative. If employment revisions confirm labor market weakness and inflation remains contained, the Fed may deliver the aggressive easing markets crave, potentially fueling another leg higher.

But stakes are elevated. A hawkish surprise on inflation or smaller-than-expected employment revisions could quickly shift sentiment. The key catalyst: Thursday's CPI reading. Above 0.3% core monthly kills jumbo cut hopes; at or below 0.2% makes 50bp the base case.

I remain bullish on the markets longer term. I believe an volatility or pullbacks will be short, bought and the bull market will continue into year end. I still like small and mid cap stocks here, along with international exposure. I am long the equal weight S&P 500 and will look to add more tech exposure if we do get a pull back, as i expect tech to outperform in the last few months of the year as earnings take center stage once again.

Stay tactical. Watch the data. The bull market remains intact, but navigation requires precision.

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Dan Sheehan

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This newsletter is for informational purposes only and should not be considered investment advice. Please consult with your financial advisor regarding your specific situation.