The Floor Failed

Markets are walking into the Fed with a familiar surface story and a very different undercurrent.

The surface story is simple. 

AI is back in control of the tape. Chip stocks are bid again after ASML posted record orders and talked about durable AI demand. 

Futures are higher. Mega cap earnings arrive after the close. 

The market wants to believe the buildout is intact and the next leg is still there.

The undercurrent is where the pressure sits. The dollar just took a sharp hit after the White House effectively endorsed the move, and that weakness is forcing money to express concern through currencies and metals instead of equities. 

Gold is making fresh highs again. Silver is back on the move. Stocks can keep printing records while credibility gets repriced somewhere else.

Investors will listen for whether the Fed is still operating independently, how Powell handles the Justice Department probe, and whether the committee is willing to validate a weaker dollar regime while the market is priced for perfection.

Against that backdrop, three signals are doing the real work for private markets. 

First, the largest platforms are converting payroll into infrastructure spend. 

Second, investment grade tech is pulling private credit into the center of its financing stack. 

Third, deflation pressure out of China is exporting a margin reset that hits portfolio companies long before it shows up cleanly in reported results.

Follow the capital destruction, not the deployment.

The government resets payment formulas. Structures reprice.

China exports deflation. Margins compress globally.

Tech redirects headcount spend to capex. Capital allocation shifts.

These aren't separate stories. They're one story about transmission channels from policy to marks.

The question isn't whether adjustments happen. It's which structures break first.

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Second major reduction since October.

The headline says efficiency. The math says capital reallocation.

16,000 roles at $150K all-in equals $2.4B annual savings. That money redirects to datacenter construction.

Amazon guided to $125B capex for 2026. Highest among megacaps.

Labor line converts to infrastructure line.

The talent pool contracts. Compensation benchmarks reset downward.

Tech PE portfolio companies can't match hyperscaler capex intensity.

Growth stalls as innovation concentrates. Margin expansion happens through wage arbitrage, not product development.

Investor Signal: Tech services portfolios face talent scarcity and margin pressure simultaneously. Model labor deflation against growth deceleration—which dominates determines exit viability.

Stock rallied 8% into Wednesday earnings.

Capex jumps 57% to $110B+ in 2026. Goldman sees $125B, possibly $144B by 2027.

Reality Labs still burns $4.4B quarterly.

The funding mechanism matters more than the amount.

Blue Owl's $27.3B "Beignet" structure is the largest private credit deal ever.

This is capital that would have gone to sponsor-backed middle-market borrowers two years ago.

Meta monetizes datacenter equity. Keeps operational control. Stays off balance sheet.

When AAA-rated tech uses private debt at scale, the entire credit stack reprices.

Traditional direct lending to middle-market sponsors faces margin compression. Spread advantage narrows.

The easy beta is gone.

Private credit must move down in credit quality or up in complexity to maintain returns.

Investor Signal: Investment-grade migration to private markets compresses direct lending yields. Structure and workout capability matter more than checkbook size.

Third consecutive year of deflation.

Not cyclical. Structural.

Producer prices down 38+ straight months. GDP deflator negative for 11 quarters.

Over 25% of listed Chinese companies are now unprofitable. Highest in 25 years.

Beijing calls it "involution." Too many firms chasing too little demand.

Margins collapse. Companies slash prices. Workers earn less. Demand weakens. Prices drop again.

The cycle feeds itself.

Home prices have been falling for 4.5 years. Household wealth destruction on par with America's 2008 crash, except still accelerating.

Trump's tariffs closed the export valve. Chinese firms face a choice: slash prices for non-US buyers or transship through third countries.

Either path squeezes margins further.

Polysilicon dropped to one-fifth of 2022 peak. Steel rebar hit eight-year lows.

This exports globally.

Chinese manufacturers flood markets with below-cost goods. Any portfolio company competing with Chinese imports faces permanent pricing pressure.

Not temporary market share loss. Structural margin reset that policy won't reverse.

Investor Signal: China-exposed portfolio companies face margin compression with no policy rescue. Asia strategies require repricing. Deflation exports through supply chains faster than borders contain it.

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Policy risk moves faster than fundamentals when the payer is the state.

CMS announced 0.09% payment increase for 2027 Medicare Advantage plans Monday night.

Wall Street expected 4-6%.

UnitedHealth dropped 19.6%. Humana fell 20%. CVS shed 14%.

Not sentiment. Structure.

The base calculation failed.

GOP control was supposed to mean friendly rates. Industry modeled 4-6% annual increases.

CMS delivered 0.09%. Not a haircut. A scalping.

$700M in additional payments sounds large until you spread it across 35 million beneficiaries. The math breaks at scale.

Payment per beneficiary barely moves while medical cost inflation runs 5-7%.

Margin structures compress inward.

UnitedHealth reported 89.1% medical care ratio. That leaves 10.9% for overhead, technology, growth, profit.

At 0.09% payment growth against 5-7% cost inflation, margins compress to zero within 18 months.

UnitedHealth already forecasts its first revenue decline since the 1980s. Down 2% to $439B.

Not cyclical adjustment. Structural repricing.

Portfolio company transmission accelerates.

UnitedHealth, Humana, CVS operate provider networks. Own clinics. Back specialty pharmacy platforms.

These assets were marked on 4-6% payment growth assumptions.

At 0.09%, the entire healthcare services PE complex reprices.

Debt-to-EBITDA ratios that penciled at 5.5x suddenly look like 7x. Refinancing rails close. Exit multiples compress.

Private equity backed hundreds of healthcare services companies on MA growth assumptions. Those marks adjust now, not when exits fail.

The credit wrapper doesn't hold.

Private credit lenders extended billions to MA-linked companies on stable payment floors.

When CMS resets the floor, covenant cushions evaporate.

Not default yet. But the distance from here to restructuring shortened dramatically.

PIK toggles activate. Amendment fees spike.

BlackRock TCP Capital just marked down NAV 19% on troubled middle-market loans. That's the leading edge, not an isolated case.

The slow-motion workout cycle begins in credit portfolios concentrated on government payment exposure.

Investor Signal: Any healthcare services portfolio company with >40% MA revenue faces immediate mark-to-market pressure. Exit timelines extend 12-18 months minimum. Covenant amendments arrive Q1. Private credit marks follow Q2.

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Healthcare services: Portfolio review for MA revenue concentration above 40%. Model payment growth at zero, not historical averages.

China exposure: Immediate margin analysis on any company competing with Chinese imports. Deflation exports through pricing, not just volume.

Tech-enabled services: Labor cost deflation vs growth deceleration—which dominates determines valuation direction.

Direct lending: Tighten documentation on government payment exposure. Assume formulas change, not improve.

Exit planning: Add 12-18 months to healthcare and tech services timelines started in 2025. The market hasn't priced the extension yet.

The setup changed overnight. Not gradually. Structurally.

CMS reset payment rails. China exported deflation deeper into global supply chains. Tech giants reset labor allocation.

These aren't separate events. They're the same event viewed through different transmission channels.

Private market structures built on 2024 assumptions face 2026 clearance mechanisms.

Marks adjust down. Exit windows narrow. Refinancing becomes restructuring.

The regime shifted while indices printed records.

Focus on documentation strength, not spread width. Revenue source stability, not topline growth. Exit clarity, not entry valuation.

The clearance isn't here, but’s certainly underway.