Alphabet of anomalies

‘K-shaped’ economy now ascendant

Some recoveries come in tidy shapes – the V-shaped rebound, the U-shaped slowdown, or even the long-suffering L. But today’s expansion looks more like a K: a winner-takes-all world split between the haves and have-nots.

The upper stroke of the K represents those riding policy tailwinds, asset booms, and technological revolutions. The lower stroke is everyone else left behind – lower-income workers, small businesses and sectors still reliant on old-fashioned face-to-face interaction (hospitality, travel, retail and the like).

Never has the world seen such extreme divergences. Two trends stand out. First, all things AI. Corporate spending on artificial intelligence now accounts for roughly half of U.S. GDP growth this year. AI-linked companies alone have delivered nearly 80% of the S&P 500’s gains in 2025.

By contrast, the consumer economy is sputtering. The list of firms posting negative real revenue growth includes Nike, Williams-Sonoma, Wynn Resorts, Procter & Gamble, nearly every public homebuilder, and a whole host of others. Meanwhile, the U.S. labour market has gone soft, with employers slashing more than 150,000 jobs in October, the largest monthly wave of layoffs since 2003.

The second trend is the boom among the already-booming. The wealthiest 10% of Americans own 85% of U.S. stocks and therefore enjoy the largest wealth effect when markets rise. Unsurprisingly, the top 10% of earners now account for half of all consumer spending – the highest share on record. America’s vaunted “consumer economy” has quietly become a high-income phenomenon.

Yet K-shaped patterns extend far beyond these divides. Contradictions abound. Booming versus faltering states. A Eurozone where the periphery once struggled and now it’s the core. A tech sector once celebrated for its capex-light business model that’s now the opposite. America’s largest city is now governed by its first millennial-socialist-Democrat mayor, Zohran Mamdani, while Republicans still control the White House. Trump’s tariffs – at their highest level in 90 years – seem to be hitting neither prices nor profits (U.S. companies’ earnings are growing at the fastest pace in four years).

Everywhere you look, the alphabet of anomalies keeps expanding.

K-shaped and complicated

The muddled macro backdrop is mirrored in financial markets. The dual rally in stocks and gold speaks to both risk appetite and the desire for protection: investors are chasing risk and hedging it at the same time. Public markets are euphoric, while many corners of private markets, once the darlings of the asset management world (and once free from those pesky things like transparency and price discovery), are being dramatically marked down. And perhaps most paradoxically, countries with the highest tariff rates imposed on them are posting some of the best-performing equity markets this year.

The end result is confusion. Economists and investors, depending on their vantage point, can look at the same economy and land on a broad range of views. The U.S. economy seems both unstoppable and vulnerable. Trump’s policy agenda appears to be simultaneously jarring and oddly inconsequential. Markets feel euphoric yet uneasy – a bull market that constantly looks over its own shoulder.

It’s an environment ripe for error. What data points actually matter? K-shaped dynamics make it hard to see the net effects, driving macro uncertainty and polarized debate. Take AI. The split between the true believers and the skeptics has never been wider. Unsurprisingly, AI-related stocks hit an air pocket in August after an MIT study found that 95% of generative AI projects have failed to deliver a measurable financial return.

Investors today are watching a split-screen economy with differing narratives flickering on and off – a constant tussle of facts and opinions seemingly pulling in opposite directions.

Next time: What to do about all this. Forstrong’s key ideas, organized around 3 pillars: Protection, Income, and Growth.

Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. This article first appeared in Forstrong’s Insights page. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on X at @TylerMordy and @ForstrongGlobal.

Disclaimers

Content © 2025 by Forstrong Global. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.

The foregoing is for general information purposes only and is the opinion of the writer. The author and clients of Forstrong Global Asset Management may have positions in securities mentioned. Performance statistics are calculated from documented actual investment strategies as set by Forstrong’s Investment Committee and applied to its portfolios mandates, and are intended to provide an approximation of composite results for separately managed accounts. Actual performance of individual separate accounts may vary with average gross “composite” performance statistics presented here due to client-specific portfolio differences with respect to size, inflow/outflow history, and inception dates, as well as intra-day market volatilities versus daily closing prices. Performance numbers are net of total ETF expense ratios and custody fees, but before withholding taxes, transaction costs and other investment management and advisor fees. Commissions and management fees may be associated with exchange-traded funds. Please read the prospectus before investing. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

Image: iStock.com/Max Zolotukhin