BND Scope: Issue 19 - Markets Are Rising in the U.S., While the Economy Slows

December data makes it clear that the long-anticipated cooling in the U.S. labor market is now hard to ignore. With only 50,000 jobs added, the month marks one of the weakest performances in recent years. Although the unemployment rate fell to 4.4%, that decline is less meaningful given downward revisions to prior months and a flat participation rate. More important is where job creation is occurring: while services such as healthcare, social services, and tourism continue to add jobs, sectors that support productive capacity—manufacturing, construction, transportation, and even parts of government—are showing net contraction. This divergence suggests that the parts of the economy tied to productivity and investment are weakening, while services linked to essential consumption are keeping overall activity afloat. Indeed, the services PMI moving above 54 indicates demand remains resilient—but this growth is no longer “easy.” Persistent pressures from wages, energy, and rents are forcing companies either to raise prices or to sacrifice margins. That, in turn, strengthens two plausible paths ahead: either services inflation remains stubborn, or demand gradually slows more visibly over time. In short, this does not automatically imply recession—but it does indicate that the era of a solid labor market is behind us and that confidence is beginning to erode.

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Global investor behavior points to a clear pattern: capital is not fleeing the U.S., but it has become far more selective. As venture capital investment and IPO activity remain subdued, large funds and institutional investors are not stepping aside—they are reallocating toward areas that generate cash flow and carry strategic priority. The fact that major indexes approached record highs in the first week of 2026 reinforces this view: the rally is still led largely by big tech and the AI ecosystem, supported by companies making “hard” investments around AI–chips–cloud infrastructure and, more broadly, by semiconductors, industrial capacity, and healthcare/pharma. As risk perception increases, it is not surprising to see sectors with more predictable cash flows—such as energy and defense—gain weight in portfolios as well. But not every sector shares the same story. For automakers and parts of consumer and retail, tariff and cost pressures, margin compression, high financing costs, and an uncertain demand outlook are keeping investors on the sidelines. Markets are no longer chasing “every growth story”—they are rewarding models that can show profits and cash today. In short, Wall Street is rising, but less on enthusiasm and more on balance-sheet quality and on where investment is truly flowing.

As the U.S. enters 2026, we are not seeing a sudden reversal, but rather a shift in balance. Employment data clearly shows growth is losing momentum, while services remain the main pillar keeping the picture afloat. Yet the resilience in services no longer points to “easy” growth—it reflects durability that is being tested by cost pressures. The most important implication of this macro backdrop is visible in capital behavior: money is not leaving the U.S., but it is no longer spreading evenly across the market. Even as prices rise, investors are becoming more selective and companies more cautious. In this issue, we look at where the fractures in the labor market are coming from, which sectors and companies capital views as “durable,” and how major players are positioning as 2026 begins.

Employment Weakens in the USA

Capital Isn’t Leaving the U.S.—Markets Are Rising Selectively

What Are the Big Players Doing Heading Into 2026?

While the quality of growth remains a macro debate, the moves of large companies offer important clues about where the U.S. economy may be headed in 2026. Early-year headlines suggest firms have not slammed on the brakes—but they are treating investment and growth more selectively and more cautiously.

In healthcare and pharmaceuticals, mergers and acquisitions are back on the agenda. According to Reuters, large drugmakers are preparing for sizable acquisitions in 2026, particularly in biotech and specialty treatments. Two key motivations stand out: the need to offset revenue gaps as blockbuster patents expire, and expectations of a more predictable regulatory environment. This reinforces the view that healthcare remains one of the most durable areas in a slowing economy—defensive, yet still offering growth optionality.

America’s largest banks closed the year on a strong note. Reuters data indicates investment banking revenues rose meaningfully in the fourth quarter. Even with IPOs still limited, debt issuance, M&A activity, and restructurings supported profitability. This suggests the financial system is not under stress—but also that companies are focusing less on expansion and more on strengthening their balance sheets.

In technology and digital infrastructure, investment in data centers and AI has not slowed. The Financial Times reports that major funds and tech companies continue to expand U.S. data-center projects. But these investments are no longer purely “tech decisions”; they are increasingly shaped by power-grid constraints, energy prices, and local regulation. In some states, the electricity demand of data centers is triggering new restrictions and added costs. That points to AI infrastructure investment continuing on a longer runway—but on a more complex operating terrain.

Consumer-facing sectors, by contrast, look more subdued. In autos and durable goods, weaker sales outlooks from some major companies suggest consumers are less willing to make big-ticket purchases amid high prices and expensive credit. Meanwhile, demand remains strong in travel, airlines, and experience-driven services. Many companies are trying to protect profitability through strategies like “fewer products, higher prices,” or by leaning toward services rather than goods.

Overall, the message from corporate headlines is consistent: entering 2026, big companies are not panicking—but they are not aggressive either. Investment is happening, deals are happening, and growth plans exist. Yet all of it is increasingly conditional on tighter cost discipline, more selective risk-taking, and stronger cash-flow resilience.

Conclusion

The core message of this issue is straightforward: the U.S. economy is still standing, but it is no longer advancing on broad-based strength—it is moving through sector-by-sector divergence. As employment shifts away from productive capacity and toward services, the quality of growth weakens. Capital is behaving in the same way: it is not fleeing risk entirely, but it is flowing selectively. The winners are those building real capacity around AI–chips–cloud infrastructure, healthcare/pharma companies that combine defensiveness with growth optionality, and cash-flow-heavy sectors such as energy and defense. The laggards are those facing tighter margins from tariffs and costs, higher financing burdens, and fragile demand—particularly autos and parts of consumer and retail. There is no panic entering 2026, but the reflexes of the “free money” era are gone. Going forward, what will matter most is not headline growth, but balance-sheet quality, cash flow durability, and where investment is truly going.