Core Insights - The analysis highlights the importance of alternative data sources in understanding wage inflation trends post-COVID, indicating a shift in wage dynamics with a softening observed primarily at the high end of the wage spectrum [1][3][5] Wage Dynamics - The recovery has shown a K-shaped pattern, where the lower end of the wage spectrum remains weak while the high end has shown some strength recently, but this has now reverted to pre-COVID levels [2][3] - Aggregate wages are returning to pre-COVID levels, indicating a softening trend, particularly from the high end rather than the low end [3][5] Market Implications - The current labor market data suggests a slowdown, which aligns with other data sources and indicates a 70% probability of the Federal Reserve continuing its rate-cutting cycle [5][6] - The dependency of risk asset markets on potential rate cuts from the Federal Reserve is emphasized, with fixed income markets being more sensitive to rate changes compared to riskier assets like high yield [6][7][8] Valuation and Market Sentiment - Recent market movements reflect a pullback from previously euphoric valuations, particularly in the equity market, which had become overextended [11][12][13] - The current market environment presents a potential buying opportunity, contingent on the macroeconomic outlook remaining stable [13] Investment Strategy - The sweet spot for investment is identified in the middle part of the yield curve (five to seven years), where the Fed's normalization efforts provide some support [14][15] - Strong corporate earnings and balance sheets suggest limited downside risk, making carry trades appealing in the current environment [17][18]