The U.S. economy is increasingly becoming a ‘K-shaped economy,’ with the fortunes of wealthy consumers and those at the lower end of the income spectrum diverging, say analysts.
EPS Estimates Diverge in 2025
Research from the Apollo Academy by chief economist Torsten Slok shows that both current and future success in the market are becoming increasingly concentrated. The "Magnificent Seven"—Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), and Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA)—have all seen their earnings expectations rise sharply since the start of 2025, reported Fortune.
These companies have heavily invested in AI, deploying it within their businesses, introducing new AI-based products, and investing in the necessary infrastructure. This has led to a substantial increase in their consensus estimates, in stark contrast to the rest of the S&P 500, where average estimations have dropped, as per Apollo.
A chart tracking 2025 EPS consensus estimates for the S&P 500 from October 2025 to April 2025 shows an average decline of about 0.2%. In contrast, estimates for the "Magnificent 7" rose by nearly 4% during the same period, while projections for the other 493 S&P 500 companies fell by roughly 1.5%.
The publication also cited Moody's chief economist, Mark Zandi, who said that the so-called wealth effect had contributed nearly half a percentage point to real GDP growth over the past year, accounting for about one-fourth of the economy's total growth.
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Wealth Rises, Confidence Falls Amid Market Jitters
The concept of a ‘K-shaped economy’ has been a topic of discussion for some time. A report in October highlighted the growing disparity between Wall Street and Main Street, with the top earners outpacing everyone else in wage growth. This was despite signs of stress in everyday American life, such as cracks in subprime credit markets and consumer finance stocks.
Another report in November noted that while the average American was growing more pessimistic about the economy, wealthy Americans were feeling better than ever, buoyed by soaring stock markets, as the University of Michigan’s preliminary reading for consumer sentiment fell to its lowest level since June 2022.
Notably, tech stocks faced a sharp selloff in the past week, with AI-related shares plunging despite solid earnings, signaling growing doubts about the sustainability of the AI boom. The combined value of the Magnificent Seven dropped from over $22 trillion to $21 trillion, wiping out more than $1 trillion, including a $500 billion loss from Nvidia alone.
Price Action
Over the past six months, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, climbed 15.09% and 20.06%, respectively, according to Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
