By Jack Hough
The economy has shifted from a lowercase k to an uppercase one, a Wall Street researcher told me this past week. I nodded and hoped it wasn't a Kevorkian reference. It turns out it's all in the arms. The k's rising one and falling one signify different groups moving in opposite directions; the rich are thriving, while the rest are struggling. With a capital K, the rising arm is more prominent, just as swelling asset prices make now an even better time than usual to be rich.
And the lower arm? It doesn't so much represent the poor, who tend to stay poor but at least receive inflation adjustments on government assistance, says Mike Reid, senior U.S. economist for RBC Capital Markets. "It's really the middle-income folks...say, the 20th to 80th percentile. Those are the folks who are being pinched the most." Reid sees implications for investors and policymakers. If top earners are driving spending growth, for example, the economy might be more exposed than usual to stock market volatility.
Meanwhile, I see a worrisome trend for letter-based financial metaphors. Already, we have S-shaped growth curves, L-shaped recessions, V- and U-shaped recoveries, and W-shaped whatevers. If interpreting the economy now hinges on fine differences between upper and lower cases, sloppy penmanship could lead to financial ruin. It's time to look beyond the alphabet for something more descriptive.
Let's look at an example. Reid points out that from 1970 to 2010, there was just under one retiree for each new worker, whereas now the ratio has ballooned to about 2.5 to 1. "You don't need this strong job growth to support a stable unemployment rate," he says. But if stocks tank, boomers eyeing lower portfolio values could hold on to their jobs for longer, exacerbating any uptick in unemployment. This feels important enough to warrant a metaphor, yet too complicated to be summed up by any single letter -- even a cursive capital G, if those still exist.
What we need is a name that evokes young people waiting for old people to turn over their spots. I'm torn between Pickleball Hours at the Town Basketball Court Effect and Restroom at a Rolling Stones Concert Dilemma.
Other strategists have spotted important market wrinkles. At BofA Securities, Jill Carey Hall, who oversees U.S. small- and mid-cap research, points out that earnings growth underlying the S&P SmallCap 600 index is expected to jump from 6% this year to 17% next year. Small companies would go from being growth laggards to leaders. Historically, when that has happened, small-caps have outperformed large-caps 75% of the time, by an average of nine percentage points a year.
This is both too tempting to ignore and too long-awaited to trust. Over the past 15 years, the large-cap S&P 500 index has returned 640%, trouncing its small-cap sibling by more than 280 points. That has left small-caps 30% cheaper than large-caps relative to this year's projected earnings. The ideal metaphor here will call to mind something small that is poised to go fast, but isn't nearly assured of success. If you ask me, 2026 is displaying a Chihuahua on an E-Bike Setup. Tiny dogs appear ready to zoom. But their little paws can't reach the handlebars, so really, anything could happen.
Among large-cap stocks, has anyone else noticed a developing Fat Cannibal Staredown? That's where market behemoths, who have been feasting on small competitors for decades, begin to hungrily eye one another's total addressable markets. Alphabet, No. 3 by market value, has developed its own zippy artificial-intelligence chips with help from No. 6 Broadcom, and is now seen as a threat to No. 1 Nvidia, who says its chips are set apart by their software, long the domain of Microsoft, which is busy battling for cloud AI work with Amazon.com, which is now selling AI chips of its own. Tesla, which has fallen out of the top seven, now says it's all about robo-taxis, but Alphabet's Waymo is the early leader there. Alphabet's YouTube is giving streamers like Netflix and Amazon pause, but Amazon's rapid rise in advertising is a menace to Alphabet and Meta Platforms.
A Fat Cannibal Staredown is always a volatile situation, especially when combined with a Muffin Top Market -- technology, media, and telecom now combine for 45% of the S&P 500 index. If we're lucky, all of that emerging AI wizardry will help more than it hurts. Deutsche Bank says that AI next year will either weaken a fragile job market or boost productivity by more than half a point. It's a classic Family Reunion Bearhug From a Cousin You Like but Who Talks Too Much About Crypto Conundrum, and I have mixed feelings.
Would it be awkward here to change topics to obesity meds and erectile function? Definitely? I wish you had said something sooner.
It's just that Oppenheimer & Co. has been highlighting the role that obesity meds, along with new treatments for cancer, infectious diseases, movement disorders, and more, can play in extending longevity and quality of life. Next up might be more attention on erectile function, which Oppenheimer calls a harbinger of health. Women outlive men by an average of 5.8 years and rising in the U.S., and heart disease, diabetes, and emotional distress are leading reasons. Erectile dysfunction is often the first detectable symptom of these, and it appears to be both a cause and effect. Treat ED, in other words, and you might extend lives.
That makes it surprising that leading ED treatments, called PDE5 inhibitors, and better known as Viagra and Cialis, are about a quarter-century old. Oppenheimer points to a tiny Swedish company called Dicot Pharma and its experimental treatment LIB-01. It has been shown in preliminary trials to work for weeks, not just hours -- in a when-needed way rather than an intrusive one, as I understand it, but I don't have the medical grasp of a trained men's downstairs-ologist. Dicot will need more capital and lengthy trials, and it might succeed or flop, but it's nice to see new movement in a neglected field.
Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 04, 2025 15:37 ET (20:37 GMT)
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