Shoppers look at a canned fish display Nov. 4, 2025 at the Market 32 Supermarket in South Burlington, Vermont.
Robert Nickelsberg | Getty Images
As stock market investors support economic sentiment, some economists wonder if a looser labor market could pull the rug out.
The University of Michigan’s widely-followed consumer sentiment index slid more than 6% in November, nearing all-time lows and down about 30% from a year ago. Respondents were concerned that the long-running federal government shutdown would drag on the economy, according to survey director Joanne Hsu.
But at least one group bucked the sour mood: Those with the most stock holdings.
The individuals with sizable stock market wealth reported an 11% improvement in sentiment, which Hsu tied to the stock market’s recent rally to all-time highs.
Conventional wisdom is that wealthier consumers will keep spending as long as they feel good about their own circumstances and see their investments growing, bolstering the economy and corporate profits. But now other economists are concerned that federal labor data, once it resumes, may paint a darker picture of the economy and catalyze a market sell-off that would throw cold water on rosy outlooks.
“It comes down to the labor market,” said Luke Tilley, chief economist at M&T Bank and Wilmington Trust. “If you start getting negative job prints, the jig is up.”
K-shape economy
Economists told CNBC that the stock market is behaving as if the economy is “K”-shaped, with the best-off thriving while the lower end struggles.
Investors are counting on the higher-end of the “K” continuing to fare well and spending part of their discretionary income. The group’s resilience even in the face of high tariffs this year and the brief April swoon in stocks has eased concern about the likelihood of the economy tipping into a recession anytime soon.
RSM chief economist Joe Brusuelas, for example, said that while he doesn’t expect top end consumers to crack and cause a recession, the Michigan survey data underscores “severe market stress” on lower-end consumers that don’t own stocks and aren’t benefiting from the artificial intelligence trade.
“Elevated equity valuations partially mask the ongoing structural transformation of the economy down market — that does not favor those who work in traditional industries,” Brusuelas said. “It points to [a] very highly segmented economy with different realities based on which economic decile you live in.”
In other words, how much money you make and how many investments you hold.
Housing wealth too
The best-off consumers also likely benefit from rising home prices on their properties and, in many instances, low mortgage rates obtained during the Covid pandemic, according to Jeffrey Roach, LPL Financial’s chief economist. That is yet another cause for optimism in this group — even if this year’s stock market rally loses steam, he said.
The benchmark S&P 500 has climbed more than 16% in 2025, excluding dividends, and is on track for its third straight winning year. The technology-heavy Nasdaq Composite has jumped nearly 22%, underscoring continued excitement around AI.
The S&P 500 and Nasdaq Composite in 2025
Roach said the expected business benefits from President Trump’s “big beautiful bill” justify some market froth, and the promise of profits from AI can lure investors into buying stocks with high valuations.
Eye on labor
How long the economy will continue to depend on the top cohort of consumers may come down to the state of the labor market, Roach said.
With less immigration under the Trump administration, it may become easier to return to the workforce, as long as demand holds up. That in turn can drive up household incomes and help the economy sidestep a possible recession down the road, Roach added.
But Tilley of M&T Bank and Wilmington Trust said warning signs are flashing. Among them, data showing small businesses shrinking payrolls. Even before the government shutdown suspended the latest jobs reports, it seemed like nonfarm payrolls were showing signs of weakness.
If employment softens, it will be harder for investors to bank on the top end of the “K”-shaped economy holding firm. The idea that wealthy consumers can single-handedly prop up demand feels “reverse engineered” to rationalize why the stock market has jumped to records despite uncertainty in the job market, said Tilley, an economic adviser to the Philadelphia Federal Reserve for almost six years before joining Wilmington Trust.
“History shows: You start getting negative job prints, the economy and the market are going to come right after that,” Tilley said. “We’re 100% focused on the labor market, and we see a lot of chinks in the armor there.”
