Addressing elections, the government shutdown, consumer sentiment, AI stocks and jobs.
You have heard me describe how raising three sports-loving sons means I consume a lot of news about record-breaking achievements. This week, Alex Ovechkin became the first player in NHL history to reach 900 goals. Washington Capitals players swarmed Ovi to celebrate his success, and hockey fans everywhere marveled at how the “Russian machine” can still be so formidable on the ice at age 40.
We saw other records broken this week as well.
According to New York City’s Board of Elections, more than two million voters cast a ballot in this week’s mayoral election, marking the biggest turnout in a New York City mayoral race in 50 years. Thirty-four-year-old Zohran Mamdani became the city’s first Muslim mayor and youngest leader in generations, and the self-proclaimed democratic socialist and his brand of economic populism achieved political star status on Tuesday night. Mamdani defeated former Governor Andrew Cuomo, running as an independent, and Republican candidate Curtis Sliwa.
Meanwhile, former CIA agent Abigail Spanberger became the state of Virginia’s first female governor, running on a message of law and order and pragmatic centrism.
And in New Jersey, former Navy helicopter pilot Mikie Sherrill, who made opposing President Donald Trump’s policies her rallying cry, achieved a decisive victory over a Republican candidate backed by the president. Prior to Sherrill’s win, it had been more than six decades since any political party had won three consecutive gubernatorial elections in the Garden State.
Economic woes topped voters’ list of worries, specifically the high cost of living, a sentiment echoed in exit poll after exit poll, as well as this morning’s University of Michigan consumer sentiment reading, which came in at the second-lowest level since 1978 (not quite a record, but close). Consumer sentiment is now as low as it was during the peak of post-pandemic inflation in 2022 and down nearly 30% from this time last year. The administration, members of Congress and others up for reelection are already bracing for the 2026 mid-terms.
We are also now experiencing the longest government shutdown in U.S. history, today in its 38th day. Over one million federal workers are on the job without paychecks, and another 600,000 have been furloughed. Air traffic control shortages are causing delays and disruptions at airports across the country, national park operations are reduced and the Smithsonian museums are closed. Head Start programs, which serve more than 700,000 low-income children nationwide, are closed in 18 states, with other states diverting funds to try to keep them open, if only for a few more weeks. For the 42 million Americans using Supplemental Nutrition Assistance Program (SNAP), benefits stopped this past weekend until pushback from two federal judges forced the Trump administration to restart those payments—but they will be delayed and may only be for half the amount people typically receive.
Stock markets have also been trading at record highs, and many individual companies like Amazon, Nvidia, Micron, Seagate Technology and Western Digital (along with bitcoin last month) hit eye-popping levels thanks to euphoria over AI spending. Some of that tone has softened this week, though, as more and more analysts are voicing concerns about the size and growth rate in capital spending and the circularity of capex within the industry. Notably, that capex is now being debt-financed. Among the Magnificent Seven, the growth rate of free cash flow has gone from more than 60% six quarters ago to negative territory two quarters in a row. Now, that shift is not in and of itself a catastrophe given the strength and durability of these companies, but previously the boom of spending was equity or cash financed.
In a vacuum with only a few pieces of economic data to hang onto, like this week’s ADP and Challenger, Gray & Christmas conflicting reports on jobs (ADP’s showed strength while Challenger reported the worst year for layoffs since 2020), markets and investors are understandably a bit on edge. We know you are feeling it too and want to help ground some of your anxiety with reassurance.
While the markets’ focus through the end of this year will likely remain on who can build the most, the fastest, we suspect this focus will shift in 2026. We believe the market will turn to identifying the companies that will best harness AI to improve their products and services and drive top-line growth. In addition, investors will look to those who can incorporate AI into their business processes to generate greater efficiencies and drive operating margins higher. This is our focus as we look to invest your funds for the long term, balancing the opportunity of AI with the risk of high valuations. One of my favorite teachers in high school used to say, “you grow when you break your own records and no others.” Let’s all consider that as we navigate these record-breaking times.
Written by a human.