QI PRO HOLY GRAIL DASHBOARD

QUICK QUILL — The Capital over Labor theme is increasingly visible in 2026. Signals from Challenger job cuts and WARN notices show labor out of favor. Standing as evidence, nonfinancial corporate performance shows accelerating unit profit growth and declining unit labor costs through 2026’s first quarter stand, which ups our conviction on the narrative. For investors with a longer-term horizon, long-duration government bonds (over short-duration) and investment-grade corporates (over high-yield) would be an appropriate thematic expression.

TAKEAWAYS

  1. Challenger Private Core Job Cuts rose 33.4% MoM to 89,087 in May, bucking the average 14% MoM drop seen over the last 11 years; the current level is higher than all months from 2010-2019, and AI was cited as the primary reason, accounting for 40% of the total
  2. WARN Notices are tracking at a 31,982 average monthly run rate so far this year, in line with 2025’s 32,019 that exceeds the 2010-2019 expansion; meanwhile, JOLTS Hires and Separations data suggests a net 45,000 revision to private core payrolls for March and April
  3. In the four quarters ended March, nonfinancial unit labor costs fell 0.1% YoY and are likely to fall further in Q2 stemming from the impact of the Iran War; cutting headcount will be integral to maintaining profit performance, which was up 5.6% YoY through the end of Q1

LONG MACRO

Recession probability to rise into 2025’s second half as private demand underperforms. The tariff shock should generate greater risks for a downshift in business investment and a more challenging environment for consumer cyclicals vis-à-vis consumer non-branded noncyclicals.

Manic shifts in U.S. politics harken first a deflationary gully to cross followed by the threat of impeachment and ultimately, a fourth change in administrations in as many U.S. presidential elections, a first in sequential terms since the precipice of the U.S. Civil War. The subsequent pendulum swing will manifest as Universal Basic Income/Modern Monetary Theory, and with it, the secular rise in inflation being prematurely predicted today by those positioned to profit from being short Treasuries.

Saturday Intelligence Briefing — 5.30.26

From oil to semiconductors to old-fashioned bond yields, we’ve come full circle. The “Iran War” now demands air quotes for traders. And the benchmark 10-year Treasury yield is now just 47 basis points (bps) from the Defcon 1 level that prompted sufficient angst inside the Beltway to prompt a response. The 13-week intermission since the 10-year closed at 3.96%, under the psychologically critical 4%-level, has been a cyclone. Aside from stocks disregarding all, what’s changed?

On Friday afternoon, Jamie Dimon spoke at the Reagan National Economic Forum. His message was not shocking but did serve as a reminder about the inevitability of credit cycles gone too far: “I do think when we have a credit cycle because there have been weakening standards in underwriting and transparency and marking, I do think you’ll see credit perform worse than people expect. That's all. I don’t think it’s systemic.”

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TACTICAL

RATES:

Short-end and Belly best opportunities for total return. Rally keys off weaker macro. Challenged private demand, higher unemployment and lower core inflation raise Fed rate cut probabilities.

Long-end holds at elevated levels with de facto caps at 4.5% for the 10-year & 5% for the long bond with the term premium supported by fiscal malfeasance exacerbated by falling sovereign revenues and despite diminishing stimulus to the U.S. consumer.

Curve view – Bull steepener in 2025’s second half.

USD:

A sidelined Fed contrasting with most global central banks easing catalyzed a selloff in the greenback. A Fed forced to play catchup could easily thin the massively crowded trade, especially as global trade weakness impairs an open global economy vs. its closed U.S. counterpart.

CREDIT:

•  Underweight HY, overweight strong cash-flow IG

•  Lower-rated buckets at risk of dispersion with Fed Higher for Longer

•  Jobless claims deterioration makes a cautious Street rethink already-wider-spreads 2025 expectations, i.e., up default estimates as bankruptcy cycle speeds up and size

•  Fitch’s acknowledgement of cyclical consumer sector “deteriorating” fits this view

EQUITIES:

OW     Utilities
OW     Fossil Fuel Energy
OW     Senior Living

UW     Consumer Staples
UW     Consumer Discretionary
UW     Large & Midsize Banks

OTHER ASSETS:

•  USD view supports UW commodities & EM

•  Oil is a different story with geopolitical risk ramping (Israel v Iran)

•  Long MOVE to capitalize on runaway lending to Nondepository Financial Institutions triggering a credit event