Market Risks You Should Be Aware Of, Ivy League Endowments’ Dismal Returns, AI Impacting the Labor Market, Tax Hikes & More

Other risks in the market you should be aware of 

Since Covid, speculative investments have continued to rise in popularity. We have talked a lot about the risks we see in margin, crypto, private investments, and prediction markets, but now there is new data about the increasing popularity of leveraged funds and options. According to exchange-traded fund manager Direxion, it looks like leveraged and inverse funds, which can be very dangerous investments, saw average daily trading volumes of 1.41 billion in 2025. That’s a gain of more than 130% from 2024 and 250% from 2020, the firm found. For those that aren’t aware of these products, leveraged funds use derivatives to try and boost the return of an asset in up markets, but they also amplify losses in down markets. Inverse funds on the other hand try and produce the opposite performance of the underlying asset. It’s not just these risky tools that have surged though as it is projected that average daily options volume hit 58 million in 2025, which is a roughly 26% increase from 2024 and is more than double the amount seen in 2020. For comparison purposes, stock volume expanded at a yearly pace of 10% between 2020 and 2025, while leveraged funds and options trading saw daily volumes grow at compound annual rates of 29% and 16%, respectively. Part of the reason for the huge increase in the volume for leveraged funds is that the total number of active leveraged funds grew by 50% in 2025, which was the largest annual increase since 2007. Ultimately, there continues to be more and more risk that is finding its way into this market. While it’s great when things are going up, it could create a downturn that is more problematic than many believe is possible. 

Ivy League Endowments have dismal returns because of private equity

 I was concerned when I saw the Ivy League schools, who I thought would be the smartest people in the room, began investing in private equity a few years ago. The results are now in, and the returns are terrible. The best annual return goes to Cornell and for the years 2022 to 2025 they only had an annualized return of 5.7%. They were closely followed by Harvard at 5.5%. The worst performer is an embarrassment as Princeton only had an annualized return of 2.8%. A large reason for the low returns is that the managers of these endowment funds invested heavily in private equity as the category made up 40% or more of the portfolios for schools such as Harvard, Yale and Princeton. The endowment funds have tried to liquidate as much as they can, but the secondary market has been rather weak, and Yale and Harvard were only able to liquidate about $1 billion of their private equity holdings last year. I think we’re in the second or third inning of how bad things will get with private equity and private debt. Unfortunately, many people, including foundations, will have poor performance and probably even some losses. A lesson to all investors, don’t get sucked into a hype investment of any type as eventually the hype disappears and you end up with nothing but dismal returns or losses. 

Is AI impacting the labor market? 

The headlines look concerning as February payrolls showed a loss of 92,000 jobs in the month. This was well below the estimate which was looking for a gain of 50k jobs and January's reading of 126k jobs. January's reading was revised down by 4k, while December saw a major negative revision of 65k jobs and now shows a loss of 17k jobs in the month. Health care employment, which has been such a stable force, showed employment declined by 28k in February. This was largely due to the Kaiser Permanente strike that sidelined 30k workers. The strike has now been resolved, so this should be a big benefit in the March data. Another important factor to remember was the severe weather that likely had an impact on hiring across all sectors in the month. The federal government continued to show declines as payrolls declined by 10k in the month and since reaching a peak in October 2024, federal government employment is down by 330,000, or 11.0 percent. Looking specifically at sectors that could be impacted by AI, information saw a decline of 11k, and the industry has lost an average of 5,000 jobs per month over the prior 12 months. While this looks concerning and I do believe part of this is due to AI, I think a lot of the decline is due to a normalization after rapid hiring post Covid that led to bloated employment and waste at many companies. Another sector that could be impacted by AI/Robots is transportation and warehousing. This sector declined by 11k in February, but a good chunk of the job loss occurred in couriers and messengers, which fell by 17,000. I'm still not seeing robotic delivery trucks out there, so again this could be due to normalization or the weather. With that said, employment in transportation and warehousing has declined by 157,000, or 2.4 percent, since reaching a peak in February 2025. Many of the other major sectors like  

construction, manufacturing, professional and business services, and leisure and hospitality saw little change in the month.  

Overall, there was definitely not much strength in the report. It is important to remember that the employment rate is still healthy at 4.4%, so I'm still not overly concerned about the labor market. With that being said, it is definitely worth watching in the coming months. 

Financial Planning: Beware of the Tax Hike Above $505k 

For married couples with adjusted gross incomes between $505,000 and $606,333, there’s a hidden tax increase caused by the way the state and local tax (SALT) deduction phases out. Below this range, taxpayers can deduct up to $40,400 in state and local taxes. As income rises through this band, that deduction gradually shrinks to $10,000, effectively losing $30,400 of deductions. Put another way, about $100,000 of extra income can increase taxable income by more than $130,000. Households at this level are usually in the 32% federal tax bracket, but because each extra dollar of income also reduces deductions, the real marginal tax rate jumps to roughly 42%. What makes this especially striking is that many people in this range are barely above the 24% bracket, meaning their marginal rate can spike from 24% to 42% over a relatively small income increase. Careful planning ahead can help avoid this sudden tax jump. 

Universities are finally using their endowment funds

For years I have wondered why big university endowment funds have continued to grow to nearly $1 trillion in assets when looking at 657 big institutions. I know there’s a certain amount of prestige saying that they have a big endowment fund, but to me it was wrong that they would continue to ask for donations to build these funds rather than use them to help students that could not afford tuition. Many students instead had to turn to the government for assistance. With the federal government cutting back on funding for some of these big schools, they actually spent a little bit of money from their endowment funds to keep things going. In the current fiscal year, the schools spent a little bit over $33 billion, which was an 11% increase over the previous year. It was nice to see that the biggest portion of the spending, slightly over 47%, went to student financial aid. In my opinion, this is the way it should be because why else would people donate to big universities other than to help the university grow and then give other students a chance to help with high tuition. 

Mortgage rates fell below 6%, will it last?

It’s been three years since mortgage rates were below 6%. Last week, the 30-year fixed mortgage on average was 5.98%, which has not been seen since September 2022. It was only a year ago in January that mortgage rates topped 7%. Higher interest rates have been difficult for the real estate market over the last couple of years. Since we have seen inflation fall recently to 2.4%, interest rates have been slowly coming down. I hope it lasts, but I do have concerns. As I have said before, there is a lot of government debt out there and more is on the way. We have also started to see some defaults in the private equity and private loan space, and there could be more coming, which may scare debt investors and require a higher yield for the risk. Falling below 6% is psychologically positive for not only homebuyers, but it also allows some people to refinance that were locked in with higher rates. The timing also seems very good because spring is generally when most families want to buy a home, so they can move over the summer months when kids are out of school. It is now more of a buyer's market and some sellers may have to come to the realization that their house is not worth the high price it was at the peak. Even with a drop in mortgage rates to under 6%, the median income US household can only afford a house costing $331,483, which is the highest price since 2022. This still does not match the recent median price for a home sold in January of $396,800. Potential homeowners are also struggling with the fact that housing prices are still on the high side, but also tack onto that higher electricity bills, high insurance cost, and property taxes. So, if you’re in the market for a home or were thinking of refinancing, you may not want to wait too long. 

Have you noticed that young girls between the ages of five and seven have been purchasing make up?

There’s no doubt that we always feel like our kids grow up too quickly. I noticed the other day when I was in a Sephora with my wife that these two young girls that were I'm guessing around 12 years old were talking about different make up. I thought to myself, "why would these young girls need any make up?" Well then, I discovered that makeup brands are now targeting girls as young as 5 to 7 years old for such things as lip balm, moisturizer, and blush. There are companies like Klee Naturals that say it’s OK for girls 5 to 7 to wear natural eyeshadow and blush, but the professional psychologists are concerned and are saying these products at this age could create an unhealthy obsession with appearance. They worry this could then cause problems as they mature and become older as they could just focus on their looks. These young girls are part of what’s known as Gen Alpha, which are children born after 2010. This makes the oldest group around 16 years old. It is also estimated that Gen Alpha is becoming consumers and on average could spend $3484 a year. Where are they getting nearly $300 a month? I have no clue. If you have young daughters, watch out for the marketing by these makeup companies trying to increase profits on these young girls by selling products they don’t need. 

Manufacturers would like to see an increase in home sales

Companies that manufacture items such as flooring, countertops, windows, and roofing have seen low to negative product demand since 2022. Even appliance makers are seeing a reduction in sales when compared to the previous year. I find interesting how people act when they are replacing a dryer, washing machine, or dishwasher. If it simply breaks, many times people will go buy a new one, but they usually look for a lower cost replacement. However, when people buy a new home or do a remodel, they’ll purchase appliances that are on the higher end. An example is Whirlpool, they say they’re more profitable appliances in good times make up as much as 60% of the sales volume, but currently with remodels and new home sales down the company says it makes up less than 40% of their sales. Even if new home sales don’t pick up dramatically, with lower short-term rates we could see a boom in remodeling because people can keep their old low-interest rate mortgage and use an equity line, also known as a HELOC, for a remodel that is more reasonable. The current average for HELOCs is around 7.25%, which is far better than the 8% to 9% they have seen in the past. So, if investors have a time horizon of 2 to 3 years, they could do well by investing in flooring companies, roofing companies, or companies that provide windows and doors. As always be sure whatever business you invest in has strong fundamentals and you’re not investing in a company blindly. 

The labor force in the U.S. is changing 

Some people are worried about AI replacing jobs and while it has led to some job loss, mass replacement is still likely many years away. We currently have a bigger problem; we might not have enough workers over the next couple of years. The United States has a current workforce of about 171 million people, but it is estimated that 12% more people will turn 65 in 2026, and it’s also estimated that about 6.3 million people will retire out of the workforce. We have to also keep in mind that the restrictions on immigration are taking more people out of the workforce. There’s still legal migration coming into the United States, but it does take time to become a citizen. Looking at the numbers, the loss in the workforce from people retiring will have a greater impact than the loss of illegal immigration. In 2025 average payrolls grew by 15,000 a month, but it's important to understand if we have more people exiting the workforce, the number of jobs that must be created to keep unemployment consistent is a lower number. One area that consistently comes up with a shortage is healthcare, especially when you consider the ratio of healthcare workers to those that are 65 or older. It is estimated that over the next 5 to 10 years with the population getting older, the healthcare sector could be adding 50,000 jobs a month. There will also be more demand for engineers because currently engineering has low enrollment as a major from students compared to other fields. Unfortunately, some students are not looking at the future of the job market and wasting money on getting degrees that have no tie to the labor market such as liberal arts majors. Those graduates may have a harder time getting a job than an engineer or someone in the healthcare industry. 

Not only is our birth rate lower but Americans are dying younger from heart attacks

I was disappointed to see that the proportion of adults from 18 to 54-years-old who have died in the hospital of a severe heart attack between 2011 and 2022 was up 57%. This was a study that was conducted by the American Heart Association and shows evidence of declining health among younger adults in the United States. The reason for the increase in death from heart attacks is increasing cases of diabetes, chronic kidney disease caused by obesity and drug use was also a factor. More men are affected by heart attacks than women as roughly 70 out of every 100 heart attacks occur in men. Unfortunately, it is not a clear road for women as the American Heart Association projects by the year 2050, 59% of women will have hypertension, which is an increase from 49% in 2020. Even with all the advances in medical technology, it still comes down to people needing to watch their health. If they’re overweight and continue to do it unhealthy things like smoke, it is more likely their life will be cut short. The bad part for the economy is that we need more healthy workers as the birth rate is very low and many baby boomers are retiring. Also, the economic strain of people being out of work or disabled for medical reasons reduces productivity in our country.