This summer has delivered a rare and disquieting convergence. U.S. policy is steering away from climate stewardship just as physical signs of climate disruption grow ever more urgent, and financial markets are concentrating to levels that history has shown can invite swift reversals.
On the policy front, the Environmental Protection Agency has formally proposed rescinding the 2009 Endangerment Finding, the legal foundation for regulating greenhouse gas emissions under the Clean Air Act (EPA Federal Register Filing, Aug 1 2025). At nearly the same moment, the administration cancelled the approved Lava Ridge wind farm in Idaho, reversing a project capable of providing renewable power to hundreds of thousands of homes (AP News, Jul 18 2025).
U.S. equity markets are now more narrowly focused than at any point since concentration records began. Nvidia represents approximately 7.5 percent of the S&P 500 (Reuters, Jul 9 2025), while Palantir trades at around 300 times forward earnings. Such levels of concentration and valuation have been seen only in rare historical episodes, and history shows that when leadership narrows to this extent, markets can respond abruptly to even small shifts in sentiment.
The physical world reflects mounting systemic risk. There are simply too many extreme events to list comprehensively, yet several stand out. In Japan, the national meteorological agency reports that July was the hottest on record, with average temperatures soaring nearly 2.9 °C above the 1991–2020 baseline — a historic anomaly not seen since records began more than a century ago (Japan Meteorological Agency). Seoul endured 22 consecutive “tropical nights,” the highest toll of overnight heat above 25 °C since data collection started (Korea Meteorological Administration). Across Europe, heatwaves have shattered local records, with France and Spain seeing prolonged highs above 40 °C (Météo-France and AEMET Spain), and the EU’s Copernicus Climate Change Service confirming that July 2025 was the third warmest July on record globally (Copernicus). In the Middle East, temperatures have climbed above 50 °C in several countries, with the UAE recording 51.6 °C in May — the highest May reading since data began in 2003 (UAE National Center of Meteorology). In Hong Kong, the Hong Kong Observatory recorded 355.7 mm of rain by mid-afternoon on August 5, marking the heaviest single-day August rainfall since records began in 1884 and prompting its fourth “black” rainstorm warning in just eight days (Hong Kong Observatory). These events are not abstract projections or debatable forecasts — they are a lived reality unfolding in real time, not the product of some hope-filled, politically naïve rhetoric that assumes the climate crisis can be wished away.
Our Resource Efficiency factor identifies companies that manage their environmental balance sheet, encompassing carbon, water, and waste, more efficiently than their sector peers. Portfolios constructed via this process typically exhibit characteristics associated with quality, such as strong profitability, low leverage, efficient capital allocation, and disciplined reinvestment. In recent periods, however, these attributes have been out of favor amid speculative momentum. Consequently, the factor underperformed despite maintaining the same environmental profile. Encouragingly, information coefficients are now strengthening in live portfolios, even as equity markets ride speculative waves powered by AI, digital currencies, and hype. Goldman Sachs’ trading desk reports clients growing more comfortable shorting unprofitable tech stocks, suggesting sentiment may already be shifting (Reuters, Jul 25 2025).
Tariff policy has devolved into headline diplomacy. The administration often claims “deals are done” yet verifiable documentation remains elusive (Politico, Aug 6 2025). Equity markets continue to rise despite this opacity. Recently, Nvidia and AMD agreed to remit 15 percent of AI chip revenues from China in exchange for export licenses. Critics warn this structurally mirrors export controls under the guise of taxation, raising legal concerns (The Guardian, Aug 10 2025; Washington Post, Aug 12 2025). The policy remains thinly documented, creating a paralytic environment for long-term corporate investment despite bold “trillions in domestic investment” pledges.
Macro data reinforce our caution. July’s nonfarm payrolls rose by just 73,000, unemployment ticked up to 4.2 percent, jobless claims reached their highest levels since 2021, and the manufacturing sector remained in contraction with the ISM at 48 (BLS, Aug 2 2025; ISM, Aug 1 2025). Adding to the uncertainty, President Trump fired the Bureau of Labor Statistics Commissioner after a weak jobs report, alleging data manipulation without evidence (Politico, Aug 1 2025). He has now nominated E.J. Antoni, a Heritage Foundation economist aligned with Project 2025, to lead the agency. The nomination raises fresh concerns over the independence of core economic data, in what critics label a case of “the doctor killing the patient” in data integrity (Reuters, Aug 11 2025).
With the climate clearly deteriorating, further delays in action and policy reversals will, in our view, compound risks for investors. Coupled with the fragile macro backdrop, this calls for a defensive tilt. Our portfolios offer quality-style exposure, which we believe will contribute positively when markets refocus on fundamentals. Because factors are inherently cyclical, we view a reversion toward quality as inevitable — when, not if — and our strategic positioning reflects that conviction.
Sincerely
Ben
CEO, Osmosis Investment Management
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