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Market strategist Adam Kobeissi has warned about an increasingly stark disconnect between soaring stock valuations and weakening consumer sentiment, arguing that the divide between asset owners and non-asset owners is set to grow wider going forward.
On Monday, in a post on X, Kobeissi highlighted that the combined market capitalization of the Magnificent 7 stocks, comprising the world’s largest tech companies, has surpassed $20 trillion.
The moniker used to describe a group of the seven most profitable and influential U.S. companies, “Mag 7” comprises names such as Apple Inc. (NASDAQ:AAPL), Amazon.com Inc. (NASDAQ:AMZN), Alphabet Inc. (NASDAQ:GOOGL) (NASDAQ:GOOG), Meta Platforms Inc. (NASDAQ:META), Microsoft Corp. (NASDAQ:MSFT), Nvidia Corp. (NASDAQ:NVDA) and Tesla Inc. (NASDAQ:TSLA).
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However, Kobeissi noted that in the midst of this rising market, “60% of Americans think we are in a recession,” highlighting the stark contrast between Wall Street and Main Street.
“Even as the S&P 500 hits record highs, young graduate unemployment in the US nears 10%,” he said, highlighting the growing strain across certain quarters of the economy.
That pressure, he said, is prompting governments and central banks to act aggressively, having resulted in stimulus packages and rate cuts “300+ times” in recent months.
“These large cap technology stocks, which now make up 40% of the S&P 500, do NOT need rate cuts, particularly as inflation runs above 3%,” he said. “But, everyone else does.”
Kobeissi warned that this divergence between markets and average households is set to intensify going forward. “The gap between asset owners and non-asset owners will only widen as a result,” he wrote, adding that "nominal asset prices will rise.”
There are growing concerns about the U.S. economy increasingly becoming “K-shaped,” which essentially marks a divergence between the wealthy and those on the lower end of the income spectrum.
According to Apollo Academy’s Chief Economist Torsten Slok, this divergence is being led by the “Mag 7” stocks, which are adding to the gap between Wall Street and Main Street, amid growing AI capEx, and rising profits resulting from the same over the past couple of years.
The University of Michigan’s Consumer Sentiment Index recently reported that most consumers remain pessimistic about the state of the economy, with the score dropping to 50.3 in November, its lowest since 2022.
The survey also noted that the wealthiest Americans were doing better than ever, which is seen as a clear sign of an increasingly divergent K-shaped economy.
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Photo by Dilok Klaisataporn via Shutterstock
