The greatest risk facing the U.S. economy may not be interest rates or private credit but rather the stock market itself. Over the past year, the stock market has added approximately $9 trillion in equity value, which has significantly boosted consumption among high-income households. However, if investment portfolios flip from 「in the green」 to 「in the red」 (i.e., suffer losses), this consumption momentum could quickly reverse.

Mark Zandi, chief economist at Moody’s Analytics, stated in an interview last Friday, 「The rise in stock prices is crucial for driving consumer spending among affluent households. In my view, a downturn in stock prices poses the real threat to the economy.」

Moody's estimates that the top 10% income group accounted for about half of consumer spending in the U.S. Despite inflation and interest rates putting pressure on lower-income families, this consumption pattern has maintained stable economic growth. Recently, the correlation between consumer spending ability and stock market performance has become increasingly evident.

Last Friday, President Trump alleviated market concerns over further escalation in U.S.-China trade tensions, coupled with a rebound in U.S. stocks after a significant drop on Thursday due to renewed worries about private credit. Moreover, despite investor panic triggered by disclosure of fraudulent loans and intensified credit pressures under a prolonged government shutdown, regional bank stocks, including Zions and Western Alliance, have also begun to recover.

Nonetheless, Zandi maintains that these risks pale in comparison to the risks accumulating within the financial markets. A sharp reversal in the stock market could swiftly undermine the confidence of wealthy households that support U.S. economic growth.

He pointed out, 「Among all the risks, whether they relate to the banking sector, government shutdown, or other issues, stock market risks top my list of concerns.」

「I am relatively optimistic about the banking sector,」 he added. 「But I’m not as optimistic about the financial markets. The current stock market valuations are too high... Everything seems a bit inflated, with valuations deviating significantly, and we’re even close to the edge of a bubble.」

Zandi cautioned that these 「bubble signs」 are directly linked to the high-income group that drives U.S. consumption. This means if stock market gains are reversed, this consumer group could rapidly curtail spending.

「Consumer Segmentation」 Deborah Weinswig, founder and CEO of Coresight Research, an organization tracking global retail and consumer trends, noted that the consumption disparity between high-income and low-income households in the U.S. has reached its highest level since January 2020.

「Currently, the purchasing power of high-income consumers remains strong, even exceeding our expectations,」 Weinswig pointed out, noting sustained growth in spending among affluent households throughout the fall season.

Meanwhile, low-income households are stretching their budgets by 「increasing the number of stores visited per shopping trip」—averaging visits to 5-6 stores now, compared to just 3 before the pandemic. They are seeking deals and stacking discounts to save money.

The U.S. economy increasingly relies on affluent consumers—if the stock market shifts, this dependency will be fraught with risks. (Image source: Getty Images/RUNSTUDIO)

「We continuously observe that middle-class consumers are under tremendous pressure,」 Weinswig stated, noting that discount retailers and luxury brands are the clear winners. 「Both the value-focused retailers at the bottom and the high-end luxury brands at the top are experiencing robust growth.」

Weinswig believes the retailers most likely to benefit in this environment include Wal-Mart (WMT), which continues to attract high-income consumers, as well as warehouse stores like Costco (COST), BJ’s Wholesale Club, and Sam’s Club—she describes them as having the 「strongest community ties and the most accurate consumer data.」

Additionally, as consumers tend to 「downgrade their purchases」 in search of lower-priced items, TJX Companies (TJX), Ross Stores (ROST), and Burlington (BURL) are particularly performing well.

「We'll not only see segmentation within consumer groups, but we will also see differentiation among retail stocks,」 she added, predicting that the performance gap between 「adaptive retailers」 and 「non-adaptive retailers」 will widen.

However, even though some retailers may benefit from consumer segmentation, there are signs that the overall consumption trend is beginning to weaken. Deloitte's 2025 Holiday Retail Survey projects that overall consumer spending will drop by 10% compared to last year, with consumers across all income tiers planning to cut back on spending.

Mike Daher, vice chairman of Deloitte, told Yahoo Finance, 「Currently, consumers are facing ‘paying ability pressure’; they are putting more thought into ensuring that their personal spending yields a higher ‘return on investment’ (value for money).」

This 「pursuit of value」 mentality has even extended to high-income groups.

Deloitte data indicates that among households earning at least $200,000 annually, about one-quarter currently exhibit 「value-seeking」 consumer behavior.

Daher pointed out, 「They are either postponing purchases altogether, looking for cheaper alternatives, or waiting for more substantial promotional offers.」

This signals that even those at the top of the consumer pyramid, supporting the functioning of the U.S. economy, may be nearing a 「critical point」 in their spending capacity.

At the Semafor World Economic Summit in Washington, John Waldron, president of Goldman Sachs, mentioned that Delta Air Lines (DAL) predicts 「high-end cabin sales will soon outpace economy class sales,」 but at the same time, low-end retailers are burdened with debt and on the brink of bankruptcy.

「The lower-economic groups are facing hardship,」 he stated, noting recent bankruptcies in the automotive sector (including First Brands and Tricolor) highlight the immense pressure felt by over-leveraged borrowers and those with weaker purchasing power.

「If consumers' ability to pay, wealth levels, and financial health deteriorate,」 he further pointed out, 「we will face greater problems.」