Wall Street’s warnings are getting louder: the U.S. economy is looking more K-shaped by the day. Wealthier households are keeping spending strong, while lower-income consumers struggle to keep up — a split that mirrors the stock market, where Big Tech continues to carry the indexes as other sectors fall behind.
The big question now is simple: How long can these two realities exist side by side before something gives?
‘They’re Not Going to Coexist Forever’
“I don’t think they’re going to coexist forever,” Bank of America senior U.S. economist Aditya Bhave said during the firm’s 2026 outlook call with Yahoo Finance this week.
But Bhave isn’t predicting collapse — at least not at the top.
“Our view is that the bottom of the K will stabilize before the top of the K collapses. That’s underpinning our more optimistic view of the economy.”
BofA now expects 2.4% real GDP growth in 2026, a forecast above most Wall Street estimates and one that assumes the U.S. avoids recession.
Soft Labor Data, Hard Truths
Bhave admitted that optimism may feel “counterintuitive” after recent labor market data:
- Planned layoffs hit their highest November reading since 2022
- Private payrolls unexpectedly fell by 32,000 in November
- Small businesses took the biggest hit
The divide between Main Street and higher-income America is clear — and widening.
Still, Bhave said the outlook hinges on one core decision: whether the economy will fall into recession.
“If our answer to that is no … you’re much more likely to grow above 2% than below, which is why we’re landing at 2.4%.”
The ‘Haves vs. Have-Nots’ — and Why It Matters
The split is real, Bhave said, but it may not be destabilizing anytime soon. Higher-income households spend far more on services, which make up the bulk of the U.S. labor market.
One encouraging sign: jobless claims dropped to a three-year low on Thursday.
“If you take $1 of spending and you tell me it was spent by a higher-income household … that’s more likely to have been spent on services,” Bhave said.
And since five out of six U.S. jobs are in services, that type of spending could help stabilize the labor market instead of weakening it.
Companies Are Feeling the Split in Real Time
Retailers see the divide clearly.
Macy’s (M) CEO Tony Spring told Yahoo Finance that the company is benefiting from higher-income spending. Bloomingdale’s posted 9% year-over-year sales growth in Q3.
Wealthier shoppers “are still willing to splurge,” Spring said — as long as the product feels worth the price. Lower-income consumers, meanwhile, continue to cut back.
But this dynamic also highlights the risk Bhave is watching closely: What happens if the “top of the K” finally cracks?
“That’s the risk scenario,” he said. A market shock or persistent labor weakening could pull higher-income spending down — and take the broader economy with it.
Reasons for Optimism Still Remain
Despite the risks, Bhave said he doesn’t buy into the doom-and-gloom narrative.
“There’s a lot of negativity out there, but I think there are also some positive stories we can focus on.”
Among them:
- Strong high-end spending
- Resilient trends in Bank of America’s real-time card data
- Healthier-than-expected demand in early holiday shopping
Holiday spending was soft around Thanksgiving, but online and discretionary purchases held up better than feared.
And Americans showed up big on major shopping days:
- Black Friday online sales: $11.8 billion — record high, up 9%
- Cyber Monday sales: $14.25 billion — up 7.1% year over year
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Consumers leaned heavily into electronics, apparel, and home goods — and used Buy Now, Pay Later at record levels to grab deals.
