K-shaped economy?

Yes on Wall Street, not yet on Main Street

“K-shaped” entered the macro lexicon during the pandemic to describe recoveries in which an upper cohort of the best performers is accelerating further away from a stagnating lower cohort. The term has reemerged as a popular lens for the recent economy. Embedded are two distinct hypotheses: that corporate profits and financial market returns are becoming increasingly concentrated; and that this concentration is translating into a bifurcated consumer economy where spending growth is disproportionately driven by high-income households. Looking at both macro and Stripe transaction data, the first hypothesis is well-supported in the US data; the second is not—at least not yet.

The K’s we see: Profits and (possibly) wealth

US corporate profits in 2025 were elevated, with profit margins reaching 17.9% over the year ending September 2025, a level not seen pre-pandemic since 1967.¹ But more striking than the average level of profitability is its distribution.

Market concentration is often dismissed as a valuation bubble, but in this case, the divergence between the best and worst performing stocks is underpinned by a massive consolidation in actual earnings. The most profitable third of publicly listed US stocks now account for roughly two-thirds of total market capitalization—the highest share on record, based on data from Eugene Fama and Kenneth French. And the most valuable 10% of the S&P 500 account for approximately 59% of the index’s total profits, well above historical norms.

There are two effects here: the most profitable companies increasing their share of equities, and large businesses getting more profitable and entering the top tercile. The steep jump we saw in 2025 was driven entirely by the latter. That included some Magnificent 7 businesses (e.g., Meta, Amazon, Alphabet), but also many large, non-Magnificent 7 companies such as Netflix, Home Depot, and JPMorgan Chase. That broadening of the profit elite within large-cap equities is a meaningful signal: it suggests the dynamic is structural, not a function of a handful of hyperscale platforms.

The mechanism is consistent with superstar firm economics. Returns to scale in software, data infrastructure, and digital distribution create winner-take-most outcomes across a widening range of industries. The equity market is, in this sense, functioning as the sorting machine it is designed to be—concentrating capital and profits toward the highest-return deployments.

The equity divergence has a plausible transmission mechanism to household wealth. The S&P 500 rose 16.5% over 2025, and the top 1% of US households own approximately 40% of all equities.² And on first glance, that mechanism seems to be firing: the share of total wealth of the top 1% has risen roughly 2 percentage points since 2022. That signal warrants some caution, however, as the rise in the top share began growing at exactly the point this data became less anchored to more-reliable wealth surveys.³ The direction of this recent trend is plausible and consistent with equity market performance, but the magnitude should be treated as provisional until more data lands.

The K’s we don’t see (yet): Consumer spending and wages

The consumer flavor of the K-shaped hypothesis might “feel” right to families because of lingering dissatisfaction with prices and affordability, which we can see in metrics like consumer sentiment. That said, while consumer spending by income group is not tracked well in real time by any single government source, the available data does not support a bifurcation narrative.

Multiple spending surveys show low-income household spending performing at least on par with high-income households over 2025. Households making under $50,000 reported spending growth of 5% over 2025, versus 4.6% for households making over $100,000. While inflation-adjusted retail spending for lower-income households grew modestly slower than it did for top-income households in 2023 and 2024, the gap converged through 2025—low- and upper-income consumption grew at similar rates. This is consistent with lagged but larger and more-reliable government data, which shows the top income decile’s share of aggregate spending at 22.8% in 2024, down from 23.4% in 2023 and below the recent peak of 23.9% in 2016 (economist Antoine Levy has a helpful deep dive on the data here).

Using Stripe data, we can also crudely proxy for consumer spending by income quartile, based on consumer MCC transactions and average income in the ZIP code of the spender. This data similarly shows no evidence of a high-income divergence: if high-income ZIP codes were seeing faster spending growth than low-income ZIPs, the ratio of the two would be rising. But in fact, the ratio has been falling since 2023. So at least on Stripe, lower-income ZIP codes have seen more robust spending growth than the top.

The picture on wages and income—which should be strongly correlated with consumption and which are more reliably measured on a household basis—is similarly undramatic. While real earnings at the 10th wage percentile have grown roughly 0.5 percentage points more slowly than at the 90th percentile since 2022, both cohorts posted positive real wage growth over the period: the bottom did not fall while the top rose. On income more broadly, lower-income households actually outperformed the middle and top from 2022 to 2024, before briefly softening in late 2024 and early 2025 and then reaccelerating. The middle income tier has grown faster than the top in 2025 and on a cumulative basis since 2022.

In short, on current data, the consumer economy looks more evenly distributed than equity market performance alone would suggest.

Why the corporate K but not the consumer K?

Several forces might explain why divergence in corporate profits has not yet translated into divergence in consumer-level consumption patterns. First, although the richest 20% hold a disproportionate share of equities, they account for less than a quarter of all consumer spending. So any equity wealth effect, even if large in percentage terms for the wealthy, is modest in aggregate demand terms. On average, only 3¢ of every $1 earned in stock market wealth is actually spent. The $6.3 trillion valuation-driven growth in equity wealth over the first 9 months of 2025 would thus be expected to support about $200 billion in consumer spending. And higher concentration of equity wealth at the less-spending-prone top can dampen this effect. The very wealthiest spend more like 1¢ for every dollar they make in the stock markets. In other words, the wealthy are getting richer, but they don’t spend enough of that extra wealth to tip the scales of the entire consumer economy. This explanation implies that the run-up in equity wealth would have to be even steeper than what we’ve seen to drive divergence in consumer spending.

Second, real wages at the bottom have been supported by continued labor market tightness and sustained gains from earlier in the pandemic, partially offsetting capital income gains accruing to the top. As the chart below shows, the strongest payroll gains since the end of 2022 have been in the lowest fifth of industries by wage level. This possibility suggests that labor market weakening would be the harbinger of K-shaped patterns in the consumer data.

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We are seeing economic divergence, but primarily in business America—in profit margins, market concentration, and equity returns—where the story appears to be largely one of tech versus nontech, rather than the consumer economy, where evidence is much weaker so far.

For investors, the profit concentration story appears durable so long as returns to scale in technology and digital infrastructure persist. The broadening of the profit elite beyond the Magnificent 7 into a wider cohort of scalable businesses supports equity earnings quality over the medium term.

The consumer K meanwhile remains an open question rather than a settled finding. Wealth concentration has risen on the best available real-time data, and the transmission mechanism—equity wealth effect into upper-income spending—is theoretically coherent, but it has yet to decisively show up in what distributional spending data we have. A consumer K could become more evident as wealth spillovers become more salient, or as other shocks such as geopolitical and trade tensions or slowing labor market churn has disparate effects on households. Until then, consumer bifurcation is a hypothesis worth monitoring, not a conclusion to act on.

The K, in other words, is more Wall Street than Main Street—for now.

1. Stripe calculations of Bureau of Economic Analysis data. Nonfinancial corporate profits before tax, adjusted for capital consumption, as a percent of the sector’s gross value add.

2. Stripe analysis of the Federal Reserve’s Distributional Financial Accounts, 2025 Q3.

3. The data shown in the figure come from the Federal Reserve’s Distributional Financial Accounts (DFAs)—a quarterly flow-of-funds decomposition. The DFAs are model-based, heavily-imputed estimates anchored in part by the Federal Reserve’s Survey of Consumer Finances (SCF), the authoritative survey-based measure of household wealth distribution. The SCF is published every three years; the most recent published edition covers 2022. The entire post-2022 rise in the DFAs falls in a window without direct SCF validation so far.