December 4, 2025

QuickTakes

CODE RED: Altman's Existential Crisis

& Trump's Affordability Crisis

The stock market has lost its mojo recently. The S&P 500 has been hovering around 6800 since late November. It did recover nicely from a November 20 low of 6538. But the rebound since then has failed to lift the index above the October 29 record high of 6890. It may break out above that high after the FOMC’s December 9-10 meeting if the Fed delivers the widely expected 25bps cut in the federal funds rate. However, if investors perceive more hawkishness among meeting participants than expected—e.g., if the decision to ease meets with more dissent than usual—our 7000-year-end target might not be reached until early next year.

Weighing on the market has been Google's Gemini-3 launch on November 18. That's been great for Alphabet, Google's parent, but it has weighed on Nvidia because Gemini-3 runs on Google's TPU chips rather than Nvidia's GPUs (chart). It also means that OpenAI's ChatGPT just lost its lead in the LLM horse race, raising even more doubts about the viability of all the expensive deals the company has been making with other AI-related companies. Indeed, the company's CEO, Sam Altman, declared a "Code Red," signaling an urgent company-wide push to improve ChatGPT's quality amid intensifying competition from Google's Gemini and Anthropic's Claude.

Furthermore, DeepSeek just released two new LLMs in late November and early December, and they are being described as rivals or even superior to OpenAI's GPT‑5 and Google's Gemini 3. This horse race will last a very long time.

The Trump administration has also declared a Code Red because of the affordability crisis that became an overnight political game-changer when Zohran Mamdami won the NYC mayoral race on this issue. Polymarket.com shows that the odds of Republicans keeping their House majority dropped from about 40% just before the election to 21.5% currently (chart). If the Republicans lose the House, Trump said the Democrats will try to impeach him for a third time. The prospect of another political circus ahead could be weighing on the stock market, too.

The macro data show that prices rose sharply since the start of the pandemic (chart). But so did wages. So why is there an affordability crisis? The increase in wages is measured using average hourly earnings. It is an average, which means that many households with below-average wage gains are getting hammered by the sharp rise in prices over the past few years.

The labor market is another Code Red problem for the Trump administration. The latest data show a 32,000 drop in payrolls during November, according to ADP. The problem is especially acute for recent college graduates and other young adults aged 20-24. Their unemployment rate has risen sharply from 6.0% in January 2024 to 9.2% in September of this year. Their votes could swing the mid-term election toward the Democrats.

While it has been harder for the unemployed to find jobs, labor market indicators suggest that layoffs remain low. Last week's sharp drop in initial unemployment claims might have been an aberration, but the series has been declining over the past few weeks (chart).

The sharp spike in the Challenger compilation of announced job layoffs during October was mainly reversed in November (chart).

There are still plenty of job openings in the labor market. However, there is also a severe skills mismatch that may be making these openings hard to fill (chart).

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