The US economy currently presents a stark dichotomy: affluent consumers remain optimistic about its prospects, while lower-income groups feel they are already in a recession—despite the job market not having fully collapsed. This is what economists call a "K-shaped economy," where the fortunes of two distinct consumer groups continue to diverge, exacerbating wealth inequality.
The widening gap between the wealthy and ordinary workers stems partly from the source of their wealth—whether they have deeply participated in the roaring stock market rally of 2025. After a volatile week, markets finally caught a breather, driven by optimism that the US government might soon end its shutdown. The decline in the VIX volatility index suggests markets expect the worst turbulence is over.
The resurgence in US stocks is a welcome relief for investors reliant on market gains, but its deeper significance lies in its broader economic impact. Moody’s Chief Economist Mark Zandi bluntly stated in a recent report: "The surge in AI company stock prices is critically important to the economy. The spending power of wealthy Americans, fueled by soaring stock assets, has become the single most dominant driver of economic growth."
"This 'wealth effect' has contributed nearly half a percentage point to real GDP growth over the past year, accounting for a quarter of overall economic expansion," Zandi added. He previously emphasized that the economic outlook is entirely "tethered" to the fate of the wealthy. In his latest report, he raised a pointed question: "We must carefully consider whether this model is sustainable. If not, what does it mean for future growth?"
Research from Apollo Academy shows that both current gains and future success potential are increasingly concentrated at an unprecedented pace. Last week, the firm’s Chief Economist Torsten Slok published a report titled "Corporate K-Shaped Economy," revealing that since early 2025, earnings expectations for the "Magnificent Seven" (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) have soared, while forecasts for the remaining 493 S&P 500 companies have declined.
The "Magnificent Seven" have doubled down on AI—integrating it into their businesses, launching new products, and investing heavily in the infrastructure needed for this disruptive technology. A chart tracking consensus EPS expectations for the S&P 500 from October 2024 to April 2025 shows an average decline of about 0.2%. However, during the same period, the "Magnificent Seven" saw their consensus estimates rise by nearly 4%, while the remaining 493 S&P constituents saw a 1.5% drop. This stark divergence signals a profound structural crisis for both US stocks and the economy.
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