Labor market weakness versus sticky inflation: The great debate
Home / Labor market weakness versus sticky inflation: The great debate
By Thierry Hasse, Chief Investment Officer, Elevage Partners
As we approach the final days of the year, investors are weighing a familiar but unresolved tension: Signs of softening in the U.S. labor market, alongside inflation data that, while improving, still warrants careful interpretation.
A Labor Market Showing Signs of Fatigue
Chief Investment Officer Thierry Hasse
The Bureau of Labor Statistics resumed publication of key labor data last week, revealing that the U.S. unemployment rate rose to 4.6% in November, up from 4.4% in September. October data were unavailable due to disruptions caused by the government shutdown. This marks the highest unemployment level since 2021.
More notably, the jobless rate has increased by roughly half a percentage point between June and November, a pace of deterioration rarely seen outside of economic downturns. This trend stands in contrast to many economists’ expectations for solid economic growth in 2026.
Hiring activity remains subdued, while layoffs at several large corporations continue to make headlines. A stagnating labor market tends to translate into fewer opportunities and moderating wage pressures, particularly for younger workers and recent college graduates. A disproportionate share of recent U.S. growth has come from artificial intelligence-related infrastructure investment, an area that, while capital-intensive, has not yet generated broad-based white-collar job creation.
Against this backdrop, the Federal Reserve faces a delicate balancing act. Officials will be closely monitoring whether unemployment continues to trend higher or whether the 0.75 points of rate cuts implemented over the past three meetings begin to stabilize labor conditions. (Source: Bloomberg News.)
A CPI Report That Raises as Many Questions as It Answers
The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 2.7% year-over-year in November, while core CPI, excluding food and energy, advanced 2.6%. These readings are the lowest since March 2021 and came in well below expectations.
However, as Federal Reserve Chair Jerome Powell noted during the most recent post-meeting news conference, these figures should be interpreted cautiously. Staffing disruptions tied to the government shutdown likely impaired data collection. Most notably, housing costs, the largest CPI component, showed no change over a two-month period, an outcome that raises methodological concerns.
Still, in the spirit of the season, it is worth acknowledging the encouraging elements of the report. The breadth of disinflation was striking. For the first time since 2019, more than half of CPI components are rising at less than a 2% annual rate. Psychologically, inflation readings in the mid-2% range are far more reassuring for households that have grappled with affordability challenges in recent years.
While caveats remain, November’s data may represent genuine progress toward easing inflationary pressures. Confirmation will come with the release of December CPI figures on Jan. 13, helping determine whether November was a statistical anomaly or a meaningful inflection point.
Equity Markets Pause, but Strong Returns Persist
Last week marked the final full trading week of 2025, closing a year that demanded resilience from investors. With holiday-related declines in liquidity, investors are unlikely to make significant portfolio adjustments in the days ahead.
Since reaching a record high on Oct. 29, the S&P 500 has traded largely sideways, staying within roughly 5% of its peak. This consolidation has allowed excess speculation to cool and valuations to settle after an extended rally, particularly in artificial intelligence-linked stocks that had increasingly drawn bubble comparisons earlier in the year.
Looking at the full year, the S&P 500 is up 16.2% year to date, following gains of 24% in 2023 and 23% in 2024. The equally weighted S&P 500 has returned 10.7%, highlighting, once again, the outsized influence of mega-cap technology companies. The so-called Magnificent 7 now represents approximately 35% of the index. While concentration risk remains a valid discussion point, recent history suggests that many investors have been more challenged by underexposure than overexposure to the market’s largest constituents. (Source: Macrotrends.)
Looking Ahead to 2026
As investors enjoy a quieter close to the year, several themes are likely to dominate conversations in the months ahead:
Inflation and interest rates: Will inflation continue to recede towards 2% allowing further interest rate cuts by the Fed?
Artificial intelligence and technology investment: Can AI sustain its growth and generate expected returns on capital
Geopolitics and global trade: Will there be peace in Ukraine and normalized trade relations between the U.S. and China?
A Seasonal Note
As we close out 2025, we extend our warmest wishes for a peaceful and restorative holiday season. Elevage Partners’ offices will be closed from Dec. 24 through Jan. 1, resuming normal business operations on Friday, Jan. 2. We look forward to continuing the conversation in the year ahead.
Important Disclosure(s)
The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.
Labor market weakness versus sticky inflation: The great debate
Home / Labor market weakness versus sticky inflation: The great debate
By Thierry Hasse, Chief Investment Officer, Elevage Partners
As we approach the final days of the year, investors are weighing a familiar but unresolved tension: Signs of softening in the U.S. labor market, alongside inflation data that, while improving, still warrants careful interpretation.
A Labor Market Showing Signs of Fatigue
The Bureau of Labor Statistics resumed publication of key labor data last week, revealing that the U.S. unemployment rate rose to 4.6% in November, up from 4.4% in September. October data were unavailable due to disruptions caused by the government shutdown. This marks the highest unemployment level since 2021.
More notably, the jobless rate has increased by roughly half a percentage point between June and November, a pace of deterioration rarely seen outside of economic downturns. This trend stands in contrast to many economists’ expectations for solid economic growth in 2026.
Hiring activity remains subdued, while layoffs at several large corporations continue to make headlines. A stagnating labor market tends to translate into fewer opportunities and moderating wage pressures, particularly for younger workers and recent college graduates. A disproportionate share of recent U.S. growth has come from artificial intelligence-related infrastructure investment, an area that, while capital-intensive, has not yet generated broad-based white-collar job creation.
Against this backdrop, the Federal Reserve faces a delicate balancing act. Officials will be closely monitoring whether unemployment continues to trend higher or whether the 0.75 points of rate cuts implemented over the past three meetings begin to stabilize labor conditions. (Source: Bloomberg News.)
A CPI Report That Raises as Many Questions as It Answers
The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 2.7% year-over-year in November, while core CPI, excluding food and energy, advanced 2.6%. These readings are the lowest since March 2021 and came in well below expectations.
However, as Federal Reserve Chair Jerome Powell noted during the most recent post-meeting news conference, these figures should be interpreted cautiously. Staffing disruptions tied to the government shutdown likely impaired data collection. Most notably, housing costs, the largest CPI component, showed no change over a two-month period, an outcome that raises methodological concerns.
Still, in the spirit of the season, it is worth acknowledging the encouraging elements of the report. The breadth of disinflation was striking. For the first time since 2019, more than half of CPI components are rising at less than a 2% annual rate. Psychologically, inflation readings in the mid-2% range are far more reassuring for households that have grappled with affordability challenges in recent years.
While caveats remain, November’s data may represent genuine progress toward easing inflationary pressures. Confirmation will come with the release of December CPI figures on Jan. 13, helping determine whether November was a statistical anomaly or a meaningful inflection point.
Equity Markets Pause, but Strong Returns Persist
Last week marked the final full trading week of 2025, closing a year that demanded resilience from investors. With holiday-related declines in liquidity, investors are unlikely to make significant portfolio adjustments in the days ahead.
Since reaching a record high on Oct. 29, the S&P 500 has traded largely sideways, staying within roughly 5% of its peak. This consolidation has allowed excess speculation to cool and valuations to settle after an extended rally, particularly in artificial intelligence-linked stocks that had increasingly drawn bubble comparisons earlier in the year.
Looking at the full year, the S&P 500 is up 16.2% year to date, following gains of 24% in 2023 and 23% in 2024. The equally weighted S&P 500 has returned 10.7%, highlighting, once again, the outsized influence of mega-cap technology companies. The so-called Magnificent 7 now represents approximately 35% of the index. While concentration risk remains a valid discussion point, recent history suggests that many investors have been more challenged by underexposure than overexposure to the market’s largest constituents. (Source: Macrotrends.)
Looking Ahead to 2026
As investors enjoy a quieter close to the year, several themes are likely to dominate conversations in the months ahead:
A Seasonal Note
As we close out 2025, we extend our warmest wishes for a peaceful and restorative holiday season. Elevage Partners’ offices will be closed from Dec. 24 through Jan. 1, resuming normal business operations on Friday, Jan. 2. We look forward to continuing the conversation in the year ahead.