By Randall W. Forsyth

The very rich are different from you and me, F. Scott Fitzgerald famously observed. And not just because they have more money, in Ernest Hemingway's famous retort. The rich don't depend on an income, at least not from a paycheck. Their wealth allows them to spend, as long as their fortunes aren't dissipated.

Consumer confidence plunged to a 12-year low, the Conference Board reported this past week, corroborating similar downbeat recent readings from the University of Michigan. Those surveys poll the entire spectrum of the populace, but, as Moody's Analytics recently reported, the top 10% of incomes account for nearly half of all consumer spending. So, how the rich think and feel has a hugely disproportionate impact on the U.S. economy.

That said, consumer stocks have been the worst performing group among the S&P 500 sectors throughout 2025. Based on their respective exchange-traded funds, which is most relevant for those playing along at home, the Consumer Discretionary Select SPDR (ticker: XLY) was down 9.36% from the beginning of the year through Thursday, even more than the 9.04% year-to-date drop in the Technology Select Sector SPDR $(XLK)$.

Yet in the rarefied environs of the Hamptons, that summer playground on eastern Long Island's South Fork, things are already bustling. The main highway, Route 27, is clogged with construction and landscape workers getting estates ready for their rich and famous owners (or renters), not to say those who aspire to that class, according to online anecdotes. And much of the money is coming from Wall Street.

Bonuses from the financial sector jumped 34%, to $47.5 billion, New York State Comptroller Thomas P. DiNapoli reported this past week. That topped the previous record of $42.7 billion set in 2021 during the post-Covid recovery, which was fueled by massive federal stimulus and 0% interest rates from the Federal Reserve. Last year's bonuses came out to an average of $244,700, although the self-proclaimed Masters of the Universe pulled down multiples of that.

"Folks with higher disposable income will be spending a lot of money in Southampton, Westhampton, Montauk, and other places -- going to restaurants for summer rentals, buying a house, a boat, jewelry, or other luxury items," DiNapoli told Newsday. That will boost sales-tax revenue, real estate commissions, and summer rental fees, he added.

This admittedly reflects environs far removed from the average person. The top 10% of American earners controlled 87% of all household ownership of equities, according to the most recent Federal Reserve data. Arbor Data Science found that equity ownership among the top 1% doubled from 2020 to 2024, to $18 trillion, a reflection of the bull market. Similarly, the value of stockholdings of the next 19% more than doubled, to $22.5 trillion from $10.4 trillion, over that span.

Which raises the question of whether last year's big bonuses on Wall Street marks a peak of sorts. Not that Bentleys are about to be jostling for space in Dollar Tree parking lots. But maybe the ultrarich will be hosting fewer soirees on their lawns, which means fewer rentals of party tents and less hiring of catering staffs. In other words, less to trickle down.

As noted here a few weeks ago, the financial sector's influence over the real economy has never been greater. The stock market's aggregate valuation was nearly twice the annual U.S. gross domestic product, noted Doug Ramsey, chief investment officer at the Leuthold Group. That column also posited that the stock market's recent correction was a well-deserved markdown of inflated valuations rather than an augury of recession. But the outsize impact of the financial sector on spending may become a drag rather than a boost to the economy.

We recently checked back with Ramsey, who tracks investors' real stock market wealth -- that is, after deducting for inflation. He said he had found that they're losing ground. The S&P 500 is up 5.7% in real terms in the 12 months to March 27, consisting of 8.5% nominal gains minus 2.8% inflation. That's not bad, though investors were up 33.4% in real terms over the 12 months through October 2024.

Coming into 2025, optimism reigned that the new year would bring a surge of merger-and-acquisition activity and an unleashing of long-deferred initial public offerings, fueled by more-permissive regulatory policies and more Fed short-term interest-rate cuts, or so it was hoped.

The CoreWeave offering, which was cut in size and price this past week, suggests that the IPO market is stalled. At the same time, expectations of Fed cuts are being deferred to the second half with inflation numbers and expectations remaining stubbornly above the Fed's 2% target.

But the stock slide that quickened at the end of the past week, as investors braced for so-called Liberation Day on April 2, when reciprocal tariffs are due to hit, is unlikely to lift spirits or spending. And don't count on the Fed to come to the market's rescue, either, although odds of a June cut ticked up on Friday.

As David Rosenberg, the eponym of Rosenberg Research, put it, the February personal spending and price data out on Friday featured a lot of "stag" and lots of "flation." The core PCE index, the Fed's favored inflation measure, rose 0.4% in the month, above the consensus call of 0.3%, pushing up the year-on-year gain to 2.8% from 2.7% in January. While personal income jumped 0.8% in the latest month, twice the forecast, most of that was due to government benefits; real earnings net of transfer payments are up at a near-stall speed of 1% from a year ago.

All of which makes the economy that much more dependent on wealthy investors.

Write to Randall W. Forsyth at randall.forsyth@barrons.com

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.

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March 28, 2025 15:32 ET (19:32 GMT)

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