Estimates relating to the share of consumption in the United States’ gross domestic product (GDP) have generally ranged between 66% and 70% since 2000. However, the relative dominance of consumers is not a constant, and recently, new sources of industrial growth are beginning to make their presence felt in the world’s largest economy. Much of this phenomenon is linked to artificial intelligence (AI) and other technological investments – think data centers and automation.
Is it problematic that the economy is moving away from the consumer, given the historical dependence of both the consumer and the stock market on strong and stable consumption? The stakes are high, as U.S. stock market valuations are relatively elevated, with the forward price-to-earnings ratio on the S&P 500 index at 21.5x as of June 11, compared to an average of 18.2x since the late 1980s.
American consumers feel the squeeze
Let’s start with American consumers: they have certainly not had an easy time since 2020. Since then, real wages have increased very little; data from the Bureau of Labor Statistics indicate that, in the year ending May 2026, real wages grew on average by only 0.5%. In simple terms, for most Americans, there has been no noticeable increase in purchasing power over half a decade. The reasons are numerous, but the main problem has been the unexpectedly high level of inflation in the U.S. economy – and, in fact, globally – since the end of the pandemic, which meant that wages, although rising, have failed to keep pace. Inequality may also play an unwanted role, with higher-skilled, higher-paid workers managing to keep up with inflation in a way the rest of the workforce simply cannot. The consequences are evident in changing habits, including generally more restrained consumption since 2020 and, significantly, the fact that discount retailers like Walmart are outperforming their more traditional counterparts like Macy’s, as shoppers prioritize savings over quality.
Artificial intelligence is fueling a new industrial boom
At the same time, some sectors of the economy are experiencing a genuine boom, not least those in data center construction, automation, aerospace, and defense. According to a Morgan Stanley estimate, this year alone, technology “hyperscalers” will spend the staggering sum of $800 billion in investments (capex), largely directed towards AI infrastructure and data centers. This new industrial economy is not merely running parallel to what is happening with consumers but may already show signs of posing a threat to certain segments of the workforce. AI and automation are often employed to reduce labor dependency in business and industrial processes, suggesting these trends could prove enduring. Personal consumption grew only 1.6% annualized in the first quarter of 2026. While it is true that investments declined in residential construction, office buildings, and transportation equipment, they grew by 43% in technology equipment, 23% in software, and 22% in data centers. The Wall Street Journal recently estimated that in the first quarter of 2026, the “AI economy” grew by 31%, while the non-AI economy remained comparatively subdued.
The stock market reflects the new economic reality
This brings us directly back to the stock market, which is once again dominated by the “Magnificent 7” stocks – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla – as well as other AI-related stocks, such as Micron, a producer of high-bandwidth memory. For some, the recent stock market rallies driven by these technology stocks and their associates have effectively become a systemic risk. Indeed, the dissonance in the United States between, on one hand, robust stock markets and, on the other, consumers scaling back their purchasing habits due to negative real incomes has become increasingly difficult to ignore. This has also reignited criticism of the so-called “K-shaped” economy that seems to benefit a narrow circle of winners while creating an entire cohort of relative losers.
Stock market history never repeats itself, but often shows similarities
For investors, however, the changing structure of the economy and stock market is something predictable over time. Railroad stocks have practically disappeared from the S&P 500 (there are only three left). The oil giant ExxonMobil now represents only 1% of the S&P 500, and five of the “Magnificent 7” alone have a market capitalization larger than the entire oil sector. In this sense, the new American industrial economy should not be viewed with suspicion any more than, for example, the rise of the automotive industry in the 20th century. For return-oriented investors, these changes in the economy could provide a certain degree of fundamental reassurance about what is happening simultaneously in the stock market.
Sector trends seem to tell the same reassuring story
Typical speculative bubbles are often accused of being – and indeed characterized by – a total detachment from economic reality, but a quick analysis of S&P 500 sector returns year-to-date reveals remarkable consistency with what is happening in the real world. The energy sector is certainly posting good results in the wake of the war in Iran, a factor that could ease if the conflict is resolved. But, at a deeper level, the technology and industrial sectors are delivering exceptionally strong performances, while the consumer discretionary sector lags behind, all closely correlated with the rise of the new industrial economy discussed. In some circles, there may be some unease about recent stock market performance, but for those looking for evidence of a disconnect from reality, the economy has yet to provide it.
