By Phil Waterproof coat, Senior Vice President, Chief Economist at Nasdaq, and Michael Normyle, Senior Director, Financial Analysis at Nasdaq
Economic system at a Look
Determine 1: Key Indicators and Traits
The Fed: Inflation, Employment, and Charges
The labor market has cooled over the previous few years, which was a purpose of the Fed’s 2022-2024 fee hike cycle. Consequently, the variety of job openings per unemployed particular person has greater than halved and is now well-balanced (Determine 2, purple line).
As labor demand slowed, wage development additionally slowed. It appears set to chill additional (inexperienced line), which ought to assist to maintain inflation falling and firms bettering margins.
Hiring and firing charges are each sluggish, with the layoff fee close to its lowest since 2000 (purple line). This appears to be retaining shoppers spending, which helps develop retail gross sales.
Determine 2: U.S. Labor Market
Sources: FactSet, Nasdaq Financial Analysis
After including 1.5 million jobs in 2024, the economic system added lower than 200,000 in 2025 however began off 2026 robust with a acquire of 130,000 jobs. Final yr’s job beneficial properties have been concentrated within the Training & Well being Companies and Leisure & Hospitality sectors and each have been nonetheless enjoying catch-up post-Covid (Determine 3). A lot of the different sectors both noticed small web beneficial properties or small web losses. Nevertheless, the Federal Authorities sector noticed the most important drop, by design, as a consequence of 289,000 DOGE job cuts.
This slowdown has helped the Fed proceed with fee cuts. The newest information signifies hiring has stabilized at low ranges, which the Fed has acknowledged and is one motive markets don’t anticipate one other fee lower till mid-2026.
Determine 3: 2025-2026 Job Positive factors and Losses
Sources: BLS, Nasdaq Financial Analysis
What’s Driving the Economic system?
Three issues are driving the economic system:
- Price cuts and slower inflation are serving to companies.
- Client spending stays resilient general. Nevertheless, a transparent “Ok-shaped” sample has emerged: the highest 10% of income-earning households now account for almost half of all spending—close to historic highs—whereas decrease revenue shoppers are more and more strained.
- Synthetic intelligence (AI) spending is now boosting the economic system—not simply the inventory market.
As well as, the One Massive Lovely Invoice Act (OBBBA) will probably be a tailwind in 2026. The Congressional Funds Workplace (CBO) estimates that it’s going to enhance GDP development by +0.9%. Accelerated depreciation and R&D expensing are anticipated to extend enterprise spending, particularly on capex. The OBBBA additionally contains tax cuts for shoppers. Tax refunds are anticipated to be $100 billion bigger this yr, whereas decrease withholding all year long will add one other $100 billion in tax financial savings.
Determine 4: 2026 % Change in After-Tax Earnings from OBBA (by Earnings Quintile)
Sources: CBO, Nasdaq Financial Analysis
What’s Driving Markets?
We’re almost by way of This fall 2025 earnings season and it’s shaping as much as be a robust quarter.
The Nasdaq-100® is on monitor for +16% p.a. earnings development, which is its 11th straight quarter of no less than +15% p.a. earnings development (Determine 5, blue bars). Analysts venture this development to proceed for the subsequent yr. The S&P 600 Small Caps aren’t far behind, on tempo for +15% YoY earnings development in This fall 2025 (inexperienced bars). That is solely their third straight quarter of optimistic earnings development.
Decrease rates of interest are a key issue as smaller corporations are inclined to rely extra closely on floating-rate debt and the Fed’s fee cuts are lastly translating into decrease curiosity bills, particularly for small cap corporations. Analysts’ forecasts present earnings development is anticipated to remain optimistic all through 2026 for small cap corporations as properly.
Determine 5: Earnings Development (%, YoY)
Sources: FactSet, Nasdaq Financial Analysis
One motive massive cap corporations’ earnings development has been stronger is that their margins have elevated to document ranges. Nevertheless, as analysis from Torsten Slok of Apollo reveals, this enlargement lately is completely pushed by Tech shares (Determine 6, orange bars), which have benefited from AI funding in excessive margin items like chips and providers like cloud computing.
Determine 6: S&P 500 Revenue Margin Enlargement Coming from Tech Corporations
Supply: Apollo
AI Spending Supporting Financial Development
The 5 main AI hyperscalers (AMZN, GOOG, META, MSFT, and ORCL) spent almost $450 billion on capex final yr.
Analysis from Bridgewater means that over 70% of AI capex passes by way of to GDP—even accounting for the truth that many chips and different {hardware} are imported. Consequently, almost half of the 2025 U.S. GDP development got here from tech investments (Determine 7, purple bar), with the opposite half coming from client spending.
Financial development in 2026 might look much like 2025. AI hyperscalers are projected to spice up capex almost 50% to $660 billion, with AI spending estimated so as to add +1.4 proportion factors to 2026 development and the OBBBA tax cuts to help client spending.
Determine 7: YTD Common Contribution to 2025 U.S. GDP Development
*Together with data processing gear, software program, and R&D; Supply: Alpine Macro
5 Questions Board Members Ought to Ask Now
- How are you measuring AI productiveness beneficial properties and what are these beneficial properties up to now?
- Are your opponents utilizing AI of their merchandise?
- With the Fed chopping charges, how does that impression your debt restructuring plans?
- Is the enterprise dealing with a talented labor scarcity and are you ready to handle it?
- How are tariffs impacting your provide chain, margins, and aggressive positioning?
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