"The economy is a tale of two halves at present, with wealthy consumers reporting confidence in their outlook, while those at the lower end of the income ladder reportedly feel they're living in a recession-albeit without widespread job losses. This is what economists are calling a 'K-shaped economy,' where the fortunes of two distinct sets of consumers are increasingly diverging over time."
"After a bumpy week, markets are buoyed today on the news that America's government shutdown may soon be drawing to a close. At the time of writing, the S&P 500 and Dow Jones are up a meager 0.1%, although the VIX volatility index has dropped, signaling that markets are expecting turbulence to subside. S&P 500 futures are up by more than 1%, indicating a return to bullish sentiment."
"It's hard to overstate the significance of the soaring stock prices of artificial intelligence companies to the economy. Spending by well-off Americans, driven by their surging stock portfolios, is the single most significant driver of growth. "This so-called wealth effect is responsible for nearly half a percentage point of real GDP growth over the past year, accounting for one-fourth of the economy's overall growth.""
The economy displays diverging outcomes: wealthy consumers report confidence while lower-income households experience recession-like conditions despite limited job losses. The split aligns with asset exposure, as affluent households benefit from the booming 2025 stock market. Recent signs that a US government shutdown may end have lifted global markets modestly, with major indices rising and volatility falling. Soaring stock prices in artificial intelligence firms have produced a significant wealth effect, where increased portfolios among well-off Americans have materially boosted consumer spending and contributed meaningfully to recent GDP growth.
Read at Fortune
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