Category: Chart of the Week

The Sorrows of Young Workers

Entry-level jobs have traditionally served as the primary bridge between education and stable employment, offering young workers a foothold from which to build skills and careers. That bridge now appears to be in a precarious position, however, as data points show that unemployment among recent college graduates has risen meaningfully in just a few years (even as headline labor market indicators remain relatively stable). Indeed, the unemployment rate for recent college graduates was 5.6% at the end of last year, compared to a more moderate figure of 4.2% for the entire United States.

Several factors could explain this situation. First, the nature of entry-level work is changing, as positions that once required little experience increasingly demand that applicants possess prior skills, internships, or even several years of relevant work. This dynamic leaves many new graduates caught in a paradox: unable to gain experience because they lack it. Hiring trends reinforce this challenge. Employer demand for early-career talent has flattened, and companies appear more reluctant to invest in training, instead favoring candidates who can contribute immediately. The result is a bottleneck at the bottom of the labor market, where supply continues to grow but opportunities do not keep pace. Broader economic forces are compounding these pressures. Technological change, particularly the increasing adoption of automation and artificial intelligence, is reshaping the types of tasks firms are willing to assign to junior workers. In many cases, routine or entry-level responsibilities are being automated or consolidated into higher-skill roles. At the same time, hiring has become more selective and uneven across industries, with growth concentrated in sectors that are less accessible to many recent graduates. Research from regional Federal Reserve banks underscores that these trends are not merely cyclical but may reflect longer-term shifts in how labor markets function. When entry-level hiring weakens, career progression slows, wage growth is delayed, and workforce participation may decline as discouraged workers step back from job searches. Over time, this can erode productivity and limit economic dynamism, as fewer workers gain the early-career experience needed to move into more advanced roles. The implications extend beyond individual job seekers to the broader economy, which depends on a steady pipeline of talent development.

Taken together, these dynamics point to a labor market that is still strong on the surface but potentially fragile beneath it. A robust economy is not defined solely by low unemployment or steady job creation, but also by the accessibility of opportunity across all stages of a worker’s career. Ensuring a sufficient supply of true entry-level roles (i.e., positions that offer training, mobility, and a pathway forward) may therefore be critical not just for today’s graduates, but for sustaining long-term economic growth.

Liberation Day: One Year Later

On April 2, 2025, President Donald Trump announced a sweeping set of tariffs on imports into the United States. Dubbed “Liberation Day,” the announcement marked one of the most significant shifts in U.S. trade policy in decades and initiated a period of heightened uncertainty across global supply chains and financial markets. One year later, it is useful to examine how markets and economic participants have navigated the resulting trade environment.

A key distinction when assessing the impact of tariffs is the difference between the policy tariff rate and the effective tariff rate (ETR). While the headline policy rate often attracts the most attention, the ETR provides a more accurate measure of economic impact. The ETR reflects the ratio of duties actually collected relative to the total value of imports entering the country. Because it incorporates supply-chain adjustments, exemptions, and technical exclusions, the effective rate tends to have a closer relationship with market outcomes than the stated policy rate.

Following Liberation Day, the monthly ETR rose sharply (from roughly 3% in March 2025 to approximately 7% in April 2025) before continuing higher and reaching a peak near 10.9% in October. By the end of February 2026, the rate had moderated but remained elevated at slightly above 8%. Over that period, the U.S. Treasury reported that the government collected approximately $295 billion in net customs duties. The administration highlighted a decline in the U.S. trade deficit of roughly 24% during the same time frame.

Another important concept is the tariff pass-through rate, which measures the extent to which higher tariffs translate into higher prices paid by businesses and consumers. Although tariff costs are shared across the global supply chain, they are not distributed evenly. Research from the Federal Reserve Bank of New York suggests that the majority of the tariff burden has fallen on U.S. importers, with estimates indicating that more than 85% of the incidence was borne domestically. Similar findings have been reported by the European Central Bank, which estimated that the pass-through to U.S. consumer prices reached roughly one-third in 2025 and could rise further if elevated tariff levels persist.

Federal Reserve officials have also acknowledged the inflationary implications of tariffs. During the FOMC press conference last month, Chair Jerome Powell noted that tariffs associated with Liberation Day had contributed to modestly higher inflation and that the full price effects could take additional time to materialize.

The policy landscape has continued to evolve. In February 2026, the U.S. Supreme Court ruled that the broad Liberation Day tariffs exceeded the administration’s authority under emergency powers, forcing the rollback of some measures and raising questions about potential tariff refunds. Nevertheless, the administration has since explored alternative legal pathways to maintain certain tariffs, underscoring that trade policy remains fluid.

As the economic effects of the original tariffs continue to unfold and as new trade measures are considered, global markets remain attentive to the evolving policy environment. One year after Liberation Day, tariffs continue to serve as a reminder that shifts in trade policy can carry meaningful economic consequences for businesses, consumers, and investors alike.

Regulation Abdication?

The Basel capital framework was created to ensure that banks maintain sufficient capital to absorb losses and reduce the risk of systemic financial instability, thereby strengthening the resilience of the global banking system. Basel I established minimum capital requirements for banks based primarily on credit risk to strengthen the stability of the international banking system, while Basel II refined the framework by introducing more risk-sensitive capital requirements and supervisory oversight to better align bank capital with the actual risks banks take. In response to the Global Financial Crisis, during which Basel II ultimately proved insufficient, Basel III significantly increased capital, liquidity, and stress‑testing requirements. While these reforms improved financial stability, they also raised the cost of holding corporate loans on bank balance sheets, contributing to a sustained decline in corporate lending as a share of total bank credit after 2008. This dynamic can be observed in the chart above. As bank balance sheet capacity for corporate lending became more constrained, non-bank lenders increasingly stepped in to provide direct financing to companies, helping to fuel the growth of the private credit asset class. A proposed Basel III “Endgame” overhaul in 2023 would have further increased capital requirements, but this overhaul was ultimately shelved amid industry pushback and concerns that new rules would have been onerous.

Last month, U.S. regulators unveiled a proposed update to bank capital rules, marking a notable recalibration of the post‑crisis regulatory framework. The proposal would ease several elements of the existing framework, including aspects of Basel III implementation, the Global Systemically Important Bank (G‑SIB) surcharge, leverage requirements, and stress‑testing assumptions. Policymakers acknowledged that earlier rounds of post‑crisis regulation, while successful in strengthening the financial system, may have unintentionally constrained banks in terms of their ability to intermediate credit (particularly to businesses) and encouraged lending activity to migrate outside the regulated banking network. New proposals seek to preserve a robust capital framework while helping banks better support corporate lending on their balance sheets and compete more effectively with non-bank lenders.

Easing capital constraints could allow banks to re‑enter certain segments of the corporate lending market, particularly lower‑risk or relationship‑driven spaces, which may help stabilize or modestly increase the share of bank balance sheets allocated to corporate loans. However, private lenders retain structural advantages, including speed of execution, flexibility in deal structuring, and a greater willingness to finance bespoke or higher‑risk situations (areas banks are unlikely to fully re‑enter even with modest capital relief). As a result, competition may increase at the margin for more standardized corporate credit, potentially tightening spreads and slowing incremental share gains for private credit. Overall, the proposed changes may reduce the pace of disintermediation, but they do not undo the long‑term structural shift away from bank‑dominated corporate lending highlighted in this week’s chart.

Pulling the Right Value Creation Levers

In the period between 2009 and 2022, private equity managers thrived amid an environment of low interest rates and rising asset prices, which led to financial engineering serving as a primary driver of portfolio value. In recent years, however, higher interest rates, elevated valuations, and tighter exit conditions have reduced the effectiveness of this value creation method. As a result, financial engineering has shifted from a core value driver to a supporting tool, prompting firms to increasingly focus on operational improvements within portfolio companies. Indeed, top-line growth and margin expansion are the key areas of value creation today, with revenue growth accounting for roughly 54% of value creation for deals that saw exits between 2017 and 2024. This dynamic can be attributed to the role of revenue growth as a sustainable and longer-term source of value creation, as it supports revenue base expansion, enables EBITDA growth, and facilitates more favorable valuation outcomes.

To drive both growth and profitability, private equity firms deploy a range of operational initiatives, including cost transformation, pricing optimization, technology integration, and supply chain improvements. While studies show that operations and pricing are the most effective levers in value creation playbooks, it is important to remember that execution is just as important as planning. To that point, a recent study found that more than half of executives cited poor implementation as a primary and controllable cause of underperformance of their businesses. Ultimately, as operational improvements become more crucial to value creation, private equity firms that can execute with discipline, particularly across revenue growth and margin expansion, will differentiate themselves when it comes to delivering returns and building more resilient and scalable businesses.

Pain at the Pump

Global energy costs have risen sharply this month due to a convergence of geopolitical shocks, as critical infrastructure and transport routes have been severely disrupted in the wake of U.S. strikes on Iran. Specifically, oil prices have climbed above $100 per barrel for the first time since 2022, while European gas futures have nearly doubled from late February levels. These developments have led to pain at the pump for many in the U.S., where the cost of a gallon of regular, unleaded gasoline has risen to more than $3.96 as of this writing. This figure represents a roughly 33% increase from the national average just one month ago.

It is hard to understate the importance of the Persian Gulf region to commodities markets, with the Strait of Hormuz alone typically handling around a quarter of seaborne oil and a significant share of liquefied natural gas (LNG) shipments. The effective closure of this waterway has choked off a vital artery for the global energy trade, and damage to the LNG export capacity of Qatar has further tightened markets. With shipping traffic in the region reduced or halted due to security risks, traders are now pricing in the possibility of prolonged energy shortages. The current situation is particularly acute because ongoing disruptions affect not just production but also the transportation of commodities that have already been produced, amplifying the supply squeeze. Additionally, oil producers in the Gulf have scaled back output as storage capacity reaches its limits, both on land and aboard tankers offshore. According to the International Energy Agency, production has been reduced by at least 10 million barrels per day, which represents more than half of the volume that typically passes through the Strait of Hormuz.

Beyond the immediate supply loss, markets are also responding to the risk of sustained or worsening disruption. Damage to key facilities (e.g., large-scale LNG processing plants) could take years to fully repair, raising the prospect of a prolonged imbalance between supply and demand. Meanwhile, continued military escalation increases the likelihood that additional infrastructure could be targeted. This uncertainty has led to a risk premium being embedded in prices, as buyers compete to secure alternative supplies and hedge against future shortages. In effect, the combination of physical damage, logistical bottlenecks, and geopolitical risk has created significant upward pressure on energy prices, with potential ripple effects across inflation, industrial activity, and global economic growth.

Closing Time

This week’s chart illustrates a clear structural shift in the fundraising dynamics of North American closed-end real estate funds over the past two decades. While funds in the early 2000s were typically able to reach final close within roughly 5–8 months, fundraising cycles have lengthened significantly in recent years. Indeed, the average time from first close to final close extended to approximately 25 months in 2025, reflecting a far more competitive and selective capital raising environment.

Several factors have contributed to this trend. First, institutional investors now maintain more mature private real estate portfolios and increasingly prioritize re-ups with existing managers, limiting capacity for new relationships. As a result, raising capital has become a more resource-intensive and prolonged process for fund sponsors. Additionally, real estate capital flows appear increasingly concentrated within two segments of the market: large, diversified platforms with multiple product offerings and specialized managers with clearly differentiated strategies. This dynamic raises the barrier to entry for emerging managers while reinforcing the advantage of established franchises with strong investor relationships and scalable platforms. In this environment, thorough manager due diligence is increasingly critical for real estate fund investors, who must move beyond brand recognition and carefully evaluate a manager’s sourcing capabilities, portfolio construction discipline, and ability to deploy capital effectively across market cycles. As fundraising timelines extend and capital becomes more concentrated among select platforms, investors who conduct rigorous underwriting will be better positioned to allocate to managers capable of consistently executing in a more competitive and capital-constrained real estate landscape.

Buy High, Sell Low?

Warren Buffett once implored investors to “be greedy when others are fearful,” and this sage advice is certainly applicable to the high yield bond market. Bond investors (who have not been living under a rock) are likely aware that high yield spread valuations are extremely tight at present. Specifically, the OAS for the Bloomberg U.S. High Yield Corporate Index reached 250 basis points on January 22 of this year, which represents its lowest level in nearly two decades. Further, outside of brief periods of widening, high yield spreads have remained well below long-term averages for multiple years. These dynamics exist for several reasons (e.g., solid corporate balance sheets, a resilient U.S. economy, and the overall higher quality of the market) and there is no denying that there is currently minimal value to be found in high yield spreads. All this begs the question: When will spreads eventually widen and by how much?

Put simply, it is impossible to answer these questions without the ability to predict the future (if you can predict the future and happen to be reading this, please call me). Indeed, timing spreads is usually a fool’s errand, but this does not stop investors from trying. When conditions are tight, many postpone capital deployment until spreads are wider and have better value, which is actually a reasonable strategy if it can be executed properly. However, a major flaw exists in this approach: Human behavior. Significant widening of high yield spreads often coincides with major economic shocks and lower asset values across portfolios. Fearful and not wanting to “catch a falling knife,” most investors will again postpone allocation decisions until economic risks subside. Since spreads widen and peak quickly, these fears can, ironically, cause investors to miss the better value they were waiting for in the first place.

This week’s chart highlights seven of the most significant spread widening periods in the history of the Bloomberg U.S. High Yield Corporate Index, as well as the cumulative 2-year performance for the index immediately following those peaks in spreads. These periods all coincided with significant economic shocks that led to elevated fear among investors, which likely delayed investment decisions but also presented strong buying opportunities. Specifically, the average cumulative return for the index in the two years immediately following these shocks was more than 43%. It is important to note that this outsized performance would have been difficult to achieve, as, barring incredible luck, buying at the peak of spreads is highly unlikely. The more relevant takeaway here is as follows: The longer it takes to allocate, the more value that is missed (on average). To put this idea in numerical terms, an investor who waited six months to invest after the peak spread levels in the instances outlined above saw an average two-year performance reduction of nearly 20% relative to one who bought at peak levels.

To be clear, Marquette is not advocating the timing of spread levels, but the information detailed above does demonstrate that even when risks seem greatest, delaying an investment due to fear of losses can result in missed opportunities. In the case of high yield spreads, it is always helpful to remember that what goes up must come down.

A Bug in the Software

Recent market dynamics in the software sector reflect a sharp shift in investor sentiment driven primarily by concerns that advances in artificial intelligence could fundamentally disrupt traditional software business models. Public software-linked equities have sold off broadly (even as many companies continue to deliver solid earnings) because investors are increasingly focused on long-term structural risks rather than near-term financial performance. Indeed, estimates for longer-term earnings growth for these businesses have started to decline despite stable or improving near-term outlooks, highlighting growing skepticism around the durability of pricing power, competitive moats, and growth trajectories in an AI-enabled environment. Since the end of October, the S&P North American Technology Software Index has fallen by roughly 30%. These concerns have now spread beyond equities into credit markets, where leveraged loan investors are rapidly reducing exposure to software-related borrowers. Many software loans that entered 2026 priced at or near par have since declined as investors reassess the sector’s credit risk profile, reflecting fears that AI-driven disruption could weaken cash flows and increase default risk for highly leveraged issuers. Specifically, the Morningstar LSTA U.S. Leveraged Loan Index has dropped by around 6% since the start of 2026.

This repricing across equity and credit markets underscores a key shift in sentiment. Software, long viewed as one of the most predictable and resilient sectors of the economy due to recurring revenue models and high margins, is now facing simultaneous multiple compression in equities and widening spreads in credit. While fundamentals remain relatively intact today, markets are increasingly discounting a wider range of potential outcomes for software-linked businesses, creating heightened volatility and a more selective environment in which investors are demanding clear evidence of AI resilience and sustainable competitive differentiation.

The Seller Becomes the Buyer

Most have traditionally viewed a successful exit for a venture-backed start-up as either an IPO or an acquisition by a larger strategic or public company. That long-standing dynamic is gradually shifting, as start-ups are now more active than ever as acquirers. Indeed, what was once a buyer landscape dominated by strategics and public corporations now increasingly includes venture-backed firms. According to PitchBook-NVCA data, VC-backed buyers accounted for more than 38% of total U.S. venture M&A activity last year, up from roughly 20% a decade ago, with 2025 marking seven consecutive years of increasing participation. Specifically, more than 387 start-ups were acquired by venture-backed companies last year, compared with 177 in 2015. Although overall exit volumes remain below 2021 peak levels, the steady rise in startup-led acquisitions reflects a structural shift toward internal consolidation within the venture ecosystem.

The drivers behind this shift are largely pragmatic, as capital remains available but far more selective. Growth equity investors are increasingly concentrated within perceived category leaders, while companies that fall slightly below that threshold face a more challenging fundraising environment. For scaling start-ups that have survived earlier rounds of capital selection, acquisitions can serve as an efficient strategic accelerant. Rather than depleting cash reserves to build adjacent features, expand geographically, or acquire customers organically, management teams can accelerate these objectives through M&A, adding revenue, product capabilities, or talent in a single transaction. At the same time, the bar for IPO readiness has risen materially in the last five years, as public investors are increasingly prioritizing profitability, operating leverage, and durable revenue growth. For venture-backed companies aiming to meet these standards, combining with a competitor or complementary platform can create scale and margin expansion more quickly than standalone execution. In some cases, consolidation represents the most rational path forward in a more disciplined capital cycle. This trend is visible at the upper end of the market as well. For instance, OpenAI completed five acquisitions across hardware design, experimentation tooling, fintech AI capabilities, and model infrastructure in 2025 alone. The fact that one of the world’s most valuable private companies is actively using M&A as a growth lever reinforces the idea that an acquisition is no longer solely a means of exit but increasingly a tool for expansion.

While it remains too early to declare a permanent transformation in venture markets, it is clear start-up-led consolidation is becoming more common and strategically meaningful. As companies remain private for longer and develop greater operational scale, their roles as acquirers may continue to expand.

The Passive Performance Podium

Performance is a key attribute of any investment strategy with a values-based or sustainability focus. As such, analyzing the 2025 returns of traditional indices and those of their ESG-integrated equivalents seemed like a worthwhile endeavor, especially given the 25th Winter Olympic Games currently taking place in Italy. The purpose of this assessment was to evaluate how ESG-oriented indices performed against traditional indices in the U.S. Large Cap, Emerging Markets, and Developed International equity spaces to determine the “passive performance medalists” of 2025.

Before evaluating returns, it is important to outline how ESG-oriented indices are constructed, given that a degree of tracking error is always to be expected from these benchmarks. According to MSCI, each ESG index seeks a risk and return profile that is similar to the broad market index it is designed to track, while also targeting improved sustainability characteristics and avoiding controversies. Of course, nuances exist across different flavors of sustainability indices. For instance, the “ESG Leaders” approach differs slightly from that of “ESG Focused” indices in that it overweights higher scoring ESG names against sector peers and utilizes additional screens. Key examples include the following:

  • MSCI USA Extended ESG Leaders Index: Applies exclusions related to alcohol, Arctic oil and gas production, controversial weapons, nuclear power, palm oil, thermal coal, tobacco, fossil fuel extraction, and gambling.
  • MSCI Emerging Markets ESG Focus Index and MSCI EAFE Extended ESG Focus Index: Both apply exclusions related to civilian firearms, controversial weapons, tobacco, thermal coal, and oil sands.

The time has now come to award the medals. In the U.S. Large Cap space, the ESG Leaders approach landed atop the podium in 2025, as overweight positions in best-in-class Communication Services companies proved fruitful last year. Within Emerging Markets, the MSCI EM ESG Focus Index took home gold with the highest absolute outperformance thanks to positive stock selection effects in sectors including Information Technology, Health Care, and Energy (where being underweight also contributed to excess returns). Finally, a photo finish determined the gold/silver outcome for traditional indices in the EAFE space. The MSCI EAFE ESG Index trailed the two traditional benchmarks due to its weapons-related exclusions and lower exposure to companies in construction and mining spaces, which hampered relative returns given Europe’s increased focus on defense and infrastructure.

The fact that passive ESG indices fared well outside of the EAFE space in 2025 serves as a reminder that funds that track these benchmarks may make sense for the following types of market participants:

  • Mission-aligned investors who do not see their values fully reflected in certain segments of their portfolios
  • Purpose-driven or traditional investors who may consider passive vehicles as placeholders before identifying a viable active manager

It is important to note that understanding the nuances of different ESG-focused products is crucial, as many involve exclusions, additional risk management levers, and screens that will create absolute and relative performance variability. Still, if a lesson can be learned from 2025, it is that investors can enjoy strong performance from passive equity strategies while also tilting toward securities with more sustainable characteristics.