Dear all,
In September, the Federal Reserve delivered what we at MacroMicro had expected as the optimal outcome—initiating a rate-cut cycle. Meanwhile, the AI productivity cycle continues unabated, with all three major US indices hitting record highs. Overall, technology-heavy indices dominated in September, with AI productivity driving the broader rally!
In last month’s report, I highlighted two critical catalysts driving market performance—Federal Reserve rate cuts and sustained AI strength—both of which have continued to gain traction this month. The Fed not only began its first cut of the year but also signaled three cuts in 2025 and one in 2026, while upgrading its 2025 GDP forecast to 1.6% from 1.4%. These moves carefully managed market expectations and communicated confidence in the economy (see report). On the AI front, corporate earnings outlooks remained robust: Broadcom’s inventories stayed lean, Oracle’s remaining performance obligations ballooned by $455 billion, and China’s Cambricon reported Q2 revenue growth of 4x year-on-year. Collectively, these signals reinforced that the AI boom is still underway.
As markets push to new highs, I want to focus this October report on two risks increasingly in the spotlight: 1. Rising fragility in the US labor market; 2. The possibility of an AI bubble. While these may appear to be separate issues, they are in fact deeply interconnected!
I. US Nonfarm Payrolls Rise Just 20k: Is the Labor Market in Trouble?
August non-farm payrolls added only 20,000 jobs, and mid-September saw a one-time downward revision of 911,000 jobs for the full year—the largest revision in history (see commentary). What exactly is happening in the US labor market? Our research team observes a clear
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