Last call from Eric Fry’s 10X “Apogee” event tomorrow… the jobs market is deteriorating – is a recession coming? … AI is weakening the link between stocks and the labor market… how to position yourself today VIEW IN BROWSER Before we jump in, a reminder that tomorrow morning at 10:00 a.m. Eastern, Eric Fry is debuting his new 10X Stock System – and giving away five free stock picks. If you’re new to the Digest, over the past 30 years, Eric Fry has built a reputation as one of the sharpest macro investors in the business – and he has the track record to prove it: 41 different stocks that went on to return 1,000%+. Since Eric has been with InvestorPlace, the question many of us have asked is “can we decode and replicate Eric’s success?” After five years of rigorous research and 5.2 million back tests, the answer is “Yes!” Tomorrow morning, Eric is unveiling Apogee – his first-ever quantitative stock-picking system that effectively reverse-engineers how he has found his biggest winners. During the 10X Breakthrough event, Eric will walk you through how the system recreates his thinking, and why now is the time to unveil it. Most important: He’ll give you the names and tickers of five stocks that Apogee has already identified as having 1,000%+ potential. Eric calls one of them “Nvidia on Steroids.” If you’re looking for a smarter way to invest that fuses decades of hands-on experience with the speed and power of machine-driven analysis, tomorrow morning at 10:00 a.m. Eastern is for you. And feel free to tune in simply to learn what the research identified as the “fingerprints” of Eric’s 10X winners. If you’re more of a do-it-yourselfer, this proven framework could be a tremendous resource for you. Click here to reserve your seat, and we’ll see you tomorrow. The jobs market is uglier than we thought In last Friday’s Digest, we reported on the awful nonfarm payroll report. As a quick refresh, only 22,000 jobs were added in August – miles below the 75,000 that economists had expected (already an underwhelming number). Let’s get more color from our hypergrowth expert, Luke Lango, in his Innovation Investor Daily Notes: Hiring slowed to basically zero, unemployment climbed to a four‑year high, wage growth cooled, and prior months’ job growth was revised lower. In short, it was the ugliest jobs report since COVID. The U.S. economy added just 22,000 jobs last month. That is one of the weakest job growth numbers since Covid. Indeed, the three weakest job growth numbers since Covid all happened in the last four months (May, June, and now August). The six-month moving average of job growth has slipped to 60,000 jobs per month. Excluding Covid, that is the lowest since 2010 and historically a level consistent with an economy that is slipping into a recession. The U.S. worker feels this labor market weakness, and it’s showing up in the sentiment data. Yesterday, a New York Federal Reserve survey found that confidence in the ability to move from one job to another has hit a record low. From CNBC: Respondents to the central bank’s monthly Survey of Consumer Expectations for August indicated a 44.9% probability of finding another job after losing their current one. The reading tumbled 5.8 percentage points from the prior month and is the lowest in the survey’s history dating back to June 2013. And this morning brought a new concerning headline. From The Wall Street Journal: U.S. Added 911,000 Fewer Jobs in the Year Ending in March - Revised job numbers show significantly weaker labor picture than earlier reports indicated The article reports that this reduction means we’ve lost slightly more than half of the jobs we believed had been created. If the new calculation holds, the average pace of jobs gains per month will fall from 147,000 to just 70,000. What is going on? And are we headed for a recession? As Luke just noted, job growth has fallen to levels consistent with an economy that is slipping into a recession. But if we look at earnings, there’s no recession within a thousand miles. To illustrate, let’s go to legendary investor Louis Navellier, the analyst behind Growth Investor: One of the primary factors fueling the summer melt-up is the spectacular earnings environment. It should remain one of the main driving forces under stocks in the upcoming months, too. According to my favorite economist, Ed Yardeni, the second quarter represents the strongest earnings surprise percentage ever recorded in the 39 years that he has observed quarterly earnings results. The average earnings surprise was a whopping 8.8%. Yardeni also points out that with 92% of S&P 500 companies reporting, second-quarter earnings rose an average of 10.6%. So, what’s happening here? How do we account for record earnings while the labor market is showing signs of going off the rails? AI Is beginning to sever the time-honored tie between jobs and profits Once upon a time, the economy and stock market were intertwined partners in a dance… Economic growth and labor market strength fueled corporate profits, which in turn drove stock prices. You could almost tell where the market was heading by watching employment stats and a handful of leading economic indicators. Profits emerged from real economic activity – consumers spent, companies staffed up, productivity hummed. That link made sense. But AI is rewriting that script… This groundbreaking technology isn’t just turbo-charging productivity, it’s unraveling the traditional relationship between jobs, earnings, and capital flows. From the research shop Chmura in a June research piece: Since the introduction of ChatGPT, the impact of generative AI on the labor market can be seen directly in job postings. Since October 2022, one month before the release of ChatGPT, job postings declined 25% while the S&P 500 increased 53%. Hiring also fell during this period, albeit to a lesser extent than job postings. Hires from the Bureau of Labor Statistics JOLTS survey declined almost 10% as the S&P 500 increased over 50%. Chmura goes on to highlight that since October 2022, the S&P 500 Information Technology sector soared more than 100%. And over that same period, job postings for computer occupations, including software developers, programmers, and database architects, have cratered 53%. Yes, there’s likely an AI bubble brewing that will eventually correct (more on that in a moment). But for some companies, their stock market gains are justified because of enormous earnings growth. Back to Louis: We’re living in a brave new world that’s increasingly dependent on AI to enhance productivity and, in turn, boost GDP (gross domestic product) growth. Over the next several years, AI will continue to invade our lives, as robots boost productivity on factory and warehouse floors, and advances like self-driving become more common. Bottom line: We’re in an incredible environment for stock market appreciation This is true – but not for all stocks Those record earnings that Yardeni just highlighted come from a tiny subset of stocks. It just so happens that they’re the market’s largest companies, so they wield an outsized influence on S&P’s headline earnings number. Let’s go to the research shop Apollo from back in July: The concentration in the S&P 500 has returned to extreme levels, with the top 10 companies accounting for 40% of the index’s market capitalization and a record-high share of earnings, see chart below. 
Source: Apollo If you can’t see the chart above clearly, the Top 10 companies account for more than 25% of all the profits in the S&P 500. Let’s return to Luke for more color on this: Today, we have a tale of two economies. There’s the AI Economy, humming along with relentless momentum, booming innovation, and insatiable enterprise demand. Then there’s the Everything Else Economy — consumer, travel, discretionary — which is feeling the brunt of tariffs, economic uncertainty, and a pinch of macro paranoia. As evidence that you needto be all-in with AI, take a look at the profit growth rates for the Magnificent 7 tech stocks (firmly in the AI Economy) and the S&P 493 (which comprises some AI Economy stocks, but also a lot of Everything Else Economy stocks). [Last] quarter, the Mag 7 is expected to grow profits by 26%, versus just 2% growth for the S&P 493. So, the historical correlation between a healthy jobs market and a healthy stock market is weakening AI enables companies to fatten margins – laying off workers while keeping productivity high. So, profits and stock prices can thrive even as the labor market slows. But here’s the thing… This shift has barely begun. Mass layoffs aren’t here right now. While this is a “low hire” market, it’s also a “low fire” one. But it won’t remain this way. As we’ve detailed here in the Digest, we’re currently in a transition phase, not the end point. From the New York Fed’s blog: Looking ahead, firms anticipate more significant layoffs and scaled-back hiring as they continue to integrate AI into their operations. As just one illustration why, take Goldman Sachs… For over a century, Goldman needed six bankers – working for two straight weeks – to draft an IPO prospectus. Well, Goldman CEO David Solomon says AI can now do 95% of that work…in minutes. So, what do you think will eventually happen to Goldman’s headcount? This underscores Luke’s point above… There’s “AI” – with what it represents for cutting-edge technologies, related stocks, and wealth creation for those who are a part of shift… And then there’s “everything else” – the stocks of yesterday’s economy, the business models that can’t adapt, and the huge swathes of workers who will be redundant as AI proliferates. Luke’s takeaway is simple: You need to be all-in with AI stocks. Everything else isn’t even growing in real terms. But what about an AI bust? That’s a real risk not to be dismissed. Luke has gone on record agreeing that AI will eventually hit its bubble phase, ultimately ending in a fiery crash. But not anytime soon: Over the next 12 months — and likely longer — the AI train will keep barreling down the tracks. Also, we need to consider one more wrinkle for why this boom could last longer… If leading AI stocks capture the bulk of labor-market efficiency gains, premium valuations could be justified. Morgan Stanley estimates AI could add as much as $16 trillion in value to the S&P 500 over time. If so, then the PE multiple for companies most effectively scaling AI should be reset upward. The question is how we’ll know when a new normal is in place. Clearly, we’ll be tracking top-line growth and margin expansion, but a new variable will likely take more spotlight… Profit per employee. As AI allows companies to generate more with leaner workforces, this metric will highlight who’s truly extracting value from automation. A rising figure here suggests that margins are expanding not because of topline growth, but because each remaining worker is being augmented by technology. And that could justify higher multiples for the best-positioned stocks. Of course, at some point, you’ve cut all the employees you can, and top-line revenue must grow. But if no one has a job at that point, even leading AI companies could run into headwinds. But that’s much farther down the road with many “what ifs?” between now and then. How to invest today Both Louis and Luke have been preparing their readers for this shift. Louis has gone on record saying we’re racing toward a seminal moment in American history – what he calls “The Economic Singularity.” That’s the point where most economic activity is controlled by an elite few who own and operate the AI systems. To help investors get ahead of this transformation, he’s assembled a research package spotlighting a handful of leading AI stocks poised to benefit. Luke, meanwhile, has turned his attention to humanoids and robotics – zeroing in on Tesla’s Optimus robot. Elon Musk recently predicted it could be “10 times bigger than the biggest product ever made.” Luke has found a backdoor play on Optimus that could be one of the most compelling ways to invest in this next evolution of AI/humanoids. You can check out his research right here. Whether your best fit is Louis’ path or Luke’s, the important thing is to start moving. The “tale of two economies” will only grow more divergent from here – and our best shot at not just surviving it, but thriving from it, will come from aligning ourselves with AI tech leaders generating snowballing profits. Have a good evening, Jeff Remsburg | 
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