A dealer works because the Dow Jones Industrial Common surpasses the 50,000 mark on the ground on the New York Inventory Alternate (NYSE) in New York Metropolis, U.S., Feb. 6, 2026.
Brendan McDermid | Reuters
There is a disconnect between the inventory market and client optimism — and a few economists say affordability is a main wrongdoer.
During the last 4 to 5 years, the inventory market has turn out to be divorced from client sentiment: Inventory valuations have soared whereas client optimism has plunged to near-record lows, economists mentioned.
The dynamic is atypical, mentioned Joe Seydl, a senior markets economist at J.P. Morgan Personal Financial institution.
Previous to 2022, inventory markets and client sentiment largely moved in sync, shifting up and down primarily based on prevailing financial circumstances, Seydl mentioned, primarily based on an evaluation of information courting to the early Nineteen Nineties. When occasions had been good, each moved upwards in tandem, and vice versa.
“It actually breaks the 25-year relationship between the 2 sequence,” Seydl mentioned.
A separate evaluation by Oxford Economics discovered the same dynamic.
The College of Michigan’s client sentiment index ought to have ended 2025 at a price of 93, primarily based on indicators like inventory costs, unemployment and inflation, in keeping with that Oxford Economics examine, printed Jan. 27. As an alternative, it was 40 factors decrease, close to an all-time low.
“Traditionally, family perceptions of the financial system carefully tracked key macroeconomic indicators,” in keeping with Oxford Economics. “At this time, these indicators counsel shoppers must be feeling considerably extra upbeat than they do.”
Impacts of the ‘vibecession’
Measuring how shoppers really feel — and the way that sentiment pertains to the inventory market and broad financial system — is essential since client spending accounts for the majority of U.S. financial output, mentioned John Canavan, lead analyst at Oxford Economics.
The so-called “vibecession” — or the bitter temper — amongst shoppers is probably going as a consequence of their views on affordability, Seydl mentioned.
“Affordability is type of this catch-all time period for widespread dissatisfaction by shoppers of present financial outcomes,” Seydl mentioned.
The dynamic may have repercussions for the general financial system, the end result of upcoming midterms in November and insurance policies pursued by lawmakers forward of these elections, analysts mentioned.
“Affordability was essential within the 2024 election,” Seydl mentioned. “The factor that helped [Republicans] achieve this effectively [in that election] is now a possible vulnerability as we head into the 2026 midterm elections.”
“The [Trump] administration is hyper-focused on this,” he mentioned.
Why affordability is a priority
There are various elements driving the eroded sense of financial well-being, economists mentioned.
Amongst them are larger costs, housing affordability and a cooldown within the job market.
Total costs are ‘sharply larger’
Whereas inflation has throttled again, the general value degree for U.S. items and providers is way larger than it was earlier than the Covid-19 pandemic, Seydl mentioned.
Common client costs elevated by about 26% from December 2019 to December 2025, in keeping with knowledge from the Bureau of Labor Statistics.
“Costs are sharply larger than they had been 5 years in the past,” Canavan mentioned. “It is nonetheless very uncomfortable for many shoppers to have a look at costs at this time, even when inflation — or the speed of value progress — has slowed significantly.”
Homeownership prices
Homeownership prices have additionally soared, Seydl mentioned.
Common charges for a 30-year fixed-rate mortgage had been simply over 6% as of Feb. 5.
Whereas they’ve declined from a excessive of about 8% in 2023, they’re nonetheless significantly larger than earlier than the Covid-19 pandemic; certainly, you’d have to return to across the time of the 2008 monetary disaster, when the housing bubble burst, to see charges north of 6%.
The everyday household spends about 38% of their earnings on housing to cowl the mortgage on the everyday new dwelling, in keeping with a February 2025 evaluation by the Nationwide Affiliation of Realtors.
In the meantime, the U.S. Division of Housing and City Growth considers a house to be “inexpensive” if month-to-month funds do not exceed roughly a 3rd of the family’s gross earnings.
A frozen labor market
Moreover, many shoppers really feel shut out of the present “low-hire, low-fire” labor market, Seydl mentioned.
Hiring has stalled out at certainly one of its lowest ranges in additional than a decade. Layoffs are additionally at traditionally low ranges, in keeping with federal knowledge courting again to the early 2000s, creating few open roles for job seekers and new entrants to the labor market.
Jobholders might also really feel much less flexibility within the office, Seydl mentioned. Employers have progressively referred to as workers again to in-person work and stripped away pandemic-era hybrid and distant work alternatives, fueling the sense of a worse work-life steadiness, he mentioned.
Synthetic intelligence and know-how
So, what’s been propping up the inventory market and financial system amid such a bitter temper?
Synthetic intelligence and know-how are a giant cause, economists mentioned.
The inventory market has been propelled larger largely because of the shares of a handful of mega-cap know-how firms — the so-called Magnificent Seven, Canavan mentioned. These firms embody Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.
With some exceptions like Amazon, these firms do not rely closely on client spending, that means client sentiment and spending have not pushed their surging share costs, he mentioned.
Corporations have additionally spent closely to construct knowledge facilities that underpin their AI progress, Seydl mentioned.
That funding has helped propel U.S. financial progress lately however will not create many roles — or raise incomes, by extension — relative to extra labor-intensive sectors like leisure and hospitality, training and well being care, for instance, he mentioned.
Ok-shaped financial system
Excessive-income households have been propping up the inventory market and broader financial system, economists mentioned.
For instance, shoppers within the high 10% of the earnings distribution accounted for greater than 49% of client spending within the second quarter of 2025, the very best degree since knowledge began being compiled in 1989, in keeping with Mark Zandi at Moody’s Analytics.
The Federal Reserve Financial institution of Dallas discovered the same pattern: Shopper spending among the many high 20% of households by earnings is up 4 proportion factors over the past three many years, to 57%, it discovered.
The emergence of this so-called “Ok-shaped” progress — whereby spending will increase for these on the high however falls for these on the backside — could pose financial dangers, in keeping with the Dallas Fed evaluation.
That is as a result of sustaining spending ranges among the many rich doubtless will depend on the inventory market remaining sturdy, Canavan mentioned.
Shares are disproportionately owned by high-income and rich households. Their spending is guided by a so-called wealth impact, whereby they spend extra freely as a result of their sizable inventory earnings lately cause them to really feel wealthy, Canavan mentioned.
Nonetheless, there is a query as to how lengthy that may final, he mentioned.
“It partly will depend on how lengthy the fairness positive factors can proceed,” Canavan mentioned.