The Labor Market Is Cracking, Stocks Are Living a Lie, and Bitcoin…

The employment data released today confirms what the headlines have been hiding: the U.S. labor market is deteriorating at a pace not seen since the COVID crash. And yet, the S&P 500 sits within 1.2% of its all-time high.

This disconnect isn’t a mystery. It’s a mirage created by seven companies masking the rot underneath. And Bitcoin, down 32% from its October high, just signaled that even that illusion is about to shatter.

Let me walk you through what’s actually happening.

The Labor Market Data: Worse Than You Think

October’s nonfarm payrolls were revised to -105,000, marking the first negative monthly print since the COVID lockdowns. This wasn’t a minor statistical adjustment. It was the labor market quietly admitting that job creation had already turned negative while everyone was celebrating “resilient” employment.

During early COVID days, people generally shrugged it off – markets didn’t seem to care. What changed it? The enormous change in the labor market.

November’s report offered little comfort. The headline +227,000 looked decent until you examined the details:

• October’s initial +12,000 was revised to -105,000 (a 117,000 swing to the downside).
• The unemployment rate ticked up to 4.2%, and broader measures show 4.6%.
• The Sahm Rule remains triggered, having been activated in July and stayed active ever since.
• Year-to-date layoff announcements via Challenger, Gray & Christmas have reached 1.17 million, approaching pandemic-era levels.

The labor market isn’t softening. It’s contracting.

The “Frozen” Labor Market Trap

What makes this cycle particularly dangerous is the nature of the deterioration. This isn’t a sudden collapse; it’s a slow suffocation.

Hiring has frozen. The JOLTS hiring rate has fallen to levels that historically preceded recessions. Companies aren’t laying off workers en masse (yet), but they’ve stopped bringing new people in. For anyone who loses their job right now, finding a new one has become dramatically harder.

Layoff announcements are accelerating. The 1.17 million announced layoffs in 2025 tells you where this is heading. These aren’t all executed yet. Many are scheduled for Q1 2026. The pain is front-loaded into the data we’ll see in coming months.

The quits rate has collapsed. Workers no longer feel confident enough to leave their jobs voluntarily. This is the opposite of a healthy labor market. It’s the behavior of workers who sense danger.

Put it together: fewer people being hired, more layoffs announced, and those with jobs too scared to leave. This is what a labor market looks like right before it tips into outright contraction.

The Stock Market Should Have Peaked Already

Here’s what makes the current situation so unusual: stocks normally peak before employment cracks, not after.

The historical pattern is consistent:

• On average, the S&P 500 peaks 2-6 months before a recession officially begins.
• The stock market peaked in October 2007, well before the December 2007 recession started.
• It peaked in March-September 2000, months before the March 2001 recession.
• Even in 2020, stocks peaked on February 19, just nine days before the recession began.

Stocks are supposed to be forward-looking. They’re supposed to anticipate trouble and decline before the economic data confirms it.

But in December 2025, the sequence is reversed.

Employment is already deteriorating. The Sahm Rule is already triggered. Layoffs are already at pandemic levels. And yet the S&P 500 just made a new all-time high on December 11 (I mean the index itself, not the futures, and I mean the closing prices).

Something is masking the underlying weakness. And that something has a name.

The Magnificent 7 Illusion

The answer lies in market concentration that has reached levels not seen since the dot-com bubble, and arguably exceeds it.

The Magnificent 7 now represent 35-37% of the S&P 500’s total market capitalization. That’s nearly three times their 12.3% share in 2015, and well above the 27% concentration at the 2000 bubble peak.

This concentration has created a dangerous illusion:

• The S&P 500 Equal Weight Index (where every stock counts equally) has underperformed the cap-weighted S&P 500 by 13% over the trailing twelve months.
• Without the Magnificent 7, the S&P 500 would have been essentially flat for 2023-2024 combined.
• The S&P 500 has outperformed the Russell 2000 small-cap index by 69% since March 2021.

In other words, the “stock market” isn’t at all-time highs. Seven AI-linked mega-cap companies are at all-time highs. The other 493 stocks in the S&P 500? The small caps? The cyclicals? They’ve been deteriorating for months, in line with the weakening economy.

The headline indices are lying to you because seven companies are doing all the heavy lifting.

Bitcoin Just Told You the Game Is Almost Over

And now we come to the signal that suggests even the Magnificent 7 illusion is about to crack: Bitcoin. I discussed the technicals yesterday, and we’ve been shorting the “new gold” since it was trading about $104k.

As of today (December 16), Bitcoin trades around $87,000, down 32% from its October high of $126,210.

Why does this matter for stocks?

Because Bitcoin has become a high-beta proxy for risk appetite, particularly for the same speculative capital that has driven AI stocks higher. The correlation between Bitcoin and the Nasdaq has reached 0.80 in recent months. When risk appetite turns, Bitcoin tends to move first and fastest.

Consider the sequence:

1. Bitcoin peaked in early October at $126,210
2. Bitcoin has since fallen 32% while the S&P 500 made new highs
3. November saw $3.48 billion in net outflows from Bitcoin ETFs
4. Whales (large holders) have dumped 36,500 BTC ($3.4 billion) since December 1

This is classic risk-off behavior. The most speculative asset in the risk complex is being liquidated while the indices, propped up by seven companies, maintain the illusion of stability.

But here’s the thing about correlations: they work in both directions. If Bitcoin is the canary in the coal mine, the canary just stopped singing.

What Triggers the Magnificent 7 to Crack

The Magnificent 7 won’t hold forever. Three catalysts historically break narrow market leadership:

1. AI Earnings Disappointment

Microsoft, Meta, Amazon, and Google collectively invested approximately $560 billion in AI infrastructure over two years while generating roughly $35 billion in AI-specific revenue. That’s a 16:1 investment-to-revenue ratio.

Those investments need to pay off. If Q4 2025 or Q1 2026 earnings calls reveal that AI revenue isn’t scaling fast enough to justify the capex, the valuation unwind will be swift.

2. Credit Spread Widening

High-yield credit spreads remain near 2.8%, matching May 2007 levels of dangerous complacency. Meanwhile, credit card and auto loan defaults have risen to their highest levels since 2010-2011.

When spreads finally widen, they tend to do so quickly. And when they do, it removes the “everything is fine” signal that has allowed equities to ignore deteriorating fundamentals.

3. The Bitcoin Correlation Catches Up

We’re already seeing Bitcoin lead lower. The question is when, not if, the Magnificent 7 follow. Historically, when correlations are this high, divergences don’t last long.

The Dam Is Holding, But the Water Is Rising

Let me be direct about what I think is happening:

The labor market has already cracked. Employment is contracting. Layoffs are accelerating. Hiring has frozen. The Sahm Rule is triggered.

Normally, stocks would have peaked months ago in anticipation of this weakness. Instead, seven AI-linked companies have propped up the indices, creating the illusion that “the market” is fine while the underlying economy deteriorates.

Bitcoin, which trades as a high-beta risk asset correlated with these same AI stocks, has already broken down. It’s down 32% from its high, with extreme fear, massive liquidations, and institutional outflows.

The stock market hasn’t peaked yet because the Magnificent 7 are holding the dam. But Bitcoin just told you the water is rising fast, and dams don’t break gradually. They hold until they don’t.

When the Magnificent 7 finally crack, whether from AI earnings disappointment, credit spread widening, or simply the correlation with Bitcoin catching up, the indices will have a lot of ground to make up to reflect the economic reality that’s already unfolding in the labor market.

What This Means for Precious Metals

For gold and silver investors, the implications are nuanced.

The initial phase of a stock market decline often sees precious metals fall alongside equities as leveraged positions are unwound and margin calls force liquidation of all assets. We saw this in March 2020 and briefly in 2008.

However, what happens after that initial flush depends on the policy response.

If the Fed responds to a stock market crash and recession with aggressive rate cuts and renewed QE, the subsequent gold rally could be substantial. But if the Fed’s hands are tied by persistent inflation (which tariffs may exacerbate), gold’s response will be more muted.

Bottom line: The labor market is already in recession-like territory. The stock market should have peaked months ago, but hasn’t because seven companies are masking the weakness. Bitcoin, the most sensitive risk asset in the complex, is down 32% and screaming that the game is almost over.

The question isn’t whether the stock market will eventually reflect economic reality. It always does. The question is whether it happens this week, this month, or early next year. Given the trajectory of employment, the extreme concentration risk, and Bitcoin’s breakdown, I think the answer is: sooner rather than later. Silver might hold up better than mining stocks (due to multiple fundamental reasons for it to move higher) during the decline, but if the stock market slides, it can decline nonetheless.

Thank you for reading today’s analysis – I appreciate that you took the time to dig deeper and that you read the entire piece. If you’d like to get more, I invite you to stay updated with our free analyses – sign up for our free gold newsletter now.

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief