The numbers: tariffs up to 41% on 69 countries, jobs at 73k (vs ~110k expected), unemployment up to 4.2%, and S&P 500 down 1.6%. May and June payrolls were also revised down by a combined 258k. Standard selloff. But credit markets moved the opposite direction—the 10-year Treasury yield fell 14 basis points to 4.22%, its biggest one-day drop since April.
Historically, equity sell-offs are often mirrored in widening credit spreads, yet Friday's move saw Treasury yields rally and loan spreads little-changed—an unusual divergence.
Private-credit loan margins barely budged. Recent June-July dividend-recap term sheets are still landing in a SOFR + 450-525 bp range (9fin). Meanwhile, middle-market deals are clearing at 8-10x EBITDA (median 9.4x per Capstone Partners) while industrial peers now change hands around 6½x forward EBITDA in public markets vs. 9-10x in recent private offers.
Three Patterns Worth Watching
Credit vs. equity disconnect: Cheaper government debt typically supports higher equity multiples. Friday showed the opposite—a reminder that different markets can price the same information very differently during uncertainty.
Public vs. private gap: The three-turn difference between similar public and private company valuations highlights how daily pricing versus periodic pricing can create temporary disconnects.
Sector indiscrimination: Industrial REITs that had outperformed (+2-3%) into late July were sold off with everything else Friday, suggesting broad risk-off sentiment rather than fundamental analysis.
What This Means for Planning
If you're already considering an exit: These patterns suggest valuation volatility could increase as Q3 earnings provide actual tariff impact data. Worth having conversations with advisors about scenario planning—what if multiples compress another turn? What if they don't?
If you're evaluating investments: The public-private valuation gap illustrates how different markets can price similar assets. Understanding these disconnects helps in evaluating opportunities, though timing them is nearly impossible.
Data quality considerations: In an environment of heightened data scrutiny, clean books and real-time dashboards may defend as much as ½ turn of value—regardless of market conditions.
When These Patterns May Resolve
These patterns typically resolve when markets have more concrete data to work with. Q3 earnings may help clarify which companies can manage tariff costs effectively. Credit markets could reprice if they see sustained volatility affecting default expectations.
Note that tariff implementation details and potential retaliatory measures aren't final, adding another layer of valuation uncertainty. China and EU responses, if any, may feed into Q4 comparables.
The goal isn't predicting how these patterns resolve—it's understanding what they tell us about market structure and preparing for multiple scenarios.
Building Systems That Work Regardless
Rather than trying to time these disconnects, focus on building wealth strategies that work in various environments:
- Diversification beyond your primary business reduces dependence on any single asset's pricing
- Scenario planning helps prepare for both multiple compression and expansion
- Quality documentation protects value regardless of market sentiment
- Flexible structures allow adaptation as conditions change
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This commentary is for informational purposes only and should not be construed as personalized investment, legal, or tax advice. All market data are believed to be accurate but have not been independently verified. Past performance is no guarantee of future results. Consult your professional advisors before acting on any information herein.
Sources: Market data: Reuters, Bloomberg, AP News | Industry: 9fin, Capstone Partners, MarketWatch