Wall Street is increasingly warning of a deepening "K-shaped" divergence in the U.S. economy: high-income households continue to drive consumer spending while lower-income consumers struggle with affordability. This mirrors what investors observe in equity markets—mega-cap tech stocks propel major indices higher while other sectors lag.

The central concern is: How long can these divergent realities coexist before imbalance triggers a breakdown?

"I don’t think this coexistence lasts forever," said Aditya Bhave, senior U.S. economist at Bank of America (BofA), during the bank’s 2026 economic outlook call with Yahoo Finance. "Our view is that the lower segment (low-income economic activity) stabilizes before the upper segment (high-income activity) collapses. This underpins our relatively optimistic economic stance."

BofA currently forecasts 2.4% real GDP growth for the U.S. in 2026, above consensus estimates, suggesting the economy will avoid recession.

Bhave acknowledged that this timeline may seem "counterintuitive" given recent weak labor market data. November saw an unexpected decline of 32,000 private-sector jobs, with small businesses hit hardest—further highlighting Main Street’s divergence.

Still, Bhave emphasized BofA’s outlook hinges on a straightforward premise: "The primary question is whether the U.S. enters a recession. If our answer is no... then growth above 2% is far more likely than below, which is why we peg it at 2.4%."

He stressed that while the "haves vs. have-nots" divide is real, it may not destabilize the economy near-term. High earners spend disproportionately on services—the backbone of U.S. employment.

"One reason not to be overly pessimistic: Who spends more on services—high or low-income groups? It’s the former," he explained. "So if you tell me $1 of spending comes from affluent households... that dollar is more likely directed toward services."

This matters because "5 out of 6 U.S. jobs are in services," Bhave noted. Increased discretionary service spending could "actually provide stronger labor market support" and "raise odds of stabilization."

Businesses are experiencing this split firsthand. Macy’s (M) CEO Tony Spring told Yahoo Finance the retailer benefits from "K-shaped" dynamics, particularly at Bloomingdale’s, where Q3 sales rose 9% YoY. While budget-conscious shoppers pull back, affluent buyers spend freely if prices seem reasonable.

Yet this divergence also underscores Bhave’s risk scenario—a potential upper-segment collapse. "It’s a tail risk," he said, possibly triggered by a market shock or prolonged labor weakness leading to recession.

Despite this, Bhave highlighted the economy’s resilience exceeding expectations. "I won’t join the doom-and-gloom chorus," he said. "There’s palpable negativity, but also positive signals."

These include robust luxury spending and encouraging trends in BofA’s real-time card data, which "impressed us this year." While holiday spending post-Thanksgiving softened, early-quarter demand—especially online and for discretionary services—outpaced forecasts.

Adobe Analytics reported record Black Friday online sales ($11.8B, up 9% YoY) and Cyber Monday growth (7.1% to $14.25B). Consumers favored electronics, apparel, and home goods, with "buy now, pay later" usage hitting records to maximize discounts.