A University of Maryland finance professor says the stock market’s historic surge can make investors feel good even as higher gas and food prices weigh on consumers, captured by a “K-shaped economy” and polling that shows confidence at a near-four-year low.
For the first time, the Dow Jones Industrial Average crossed 50,000 points in February—and it’s stayed historically high ever since. To people watching their retirement accounts, it may feel like the economy is surging.
But in the same moment, inflation remains elevated. Grocery prices are soaring. gasoline prices have risen by more than a dollar per gallon. and Memorial Day travel plans are getting squeezed by the cost of getting where they want to go. Backyard grilling is also getting more expensive, with high food prices—particularly beef—adding to the strain. Kass, a clinical professor of finance at the Robert H. Smith School of Business at the University of Maryland. calls the gap a “K-shaped economy. ” where one leg is rising and the other is falling.
David Kass said the market is climbing largely on “projected earnings gains, earnings growth of large companies.”
“Those who are invested in the stock market are basically investing in future growth of corporate earnings,” he said.
In other words: stock gains are tied to expectations, not to how much money families have left after paying for essentials.
Kass said that dynamic helps explain why many Americans may feel confident when they look at their 401(k) statements or other market indicators. He said 52% of Americans are invested in the stock market, “the vast majority of them through their retirement accounts.”
“Psychologically, it’s very pleasing to see the values increasing,” Kass said.
But he warned that the experience is sharply different for people who don’t have a stake in the stock market—or for working Americans who have 401(k) plans for the future but still worry about their day-to-day cash flow.
“Those who are really not invested in the stock market in any form… they’re being hit very hard … by inflation,” Kass said. “There’s no question about higher gas prices, higher food prices and they undoubtedly do not feel better off.”
“It’s really a mixed picture as to which part of the population of does feel better off and which does not,” he said.
That mismatch shows up in recent polling. A Gallup poll released on Friday found Americans’ confidence in the economy is at its lowest in nearly four years. Only 20% of Americans polled think that economic conditions in the country are improving. and partisan gaps remain wide. with a rise in 22 points among Republicans compared to late 2024.
At the same time, University of Michigan survey data points to a more fraught view of what comes next. The survey of U.S. consumers found sentiment fell to a record low, piercing below a bottom in 2022 when inflation peaked above 9%. Households are feeling worried about how bad inflation is now because of expensive oil tied to the war with Iran.
In that survey, U.S. consumers are forecasting inflation will worsen to 4.8% in the coming 12 months, up from a forecast of 4.7% last month. Their longer-run inflation forecasts also shifted higher, jumping to 3.9% from 3.5% last month. Economists watch those expectations closely because they can influence behavior in ways that may help drive a “vicious cycle” that makes inflation worse.
Kass said the uneven nature of the economy lands hardest where it has the least margin—especially lower-income consumers, who are least able to absorb higher costs for essentials. The Michigan survey also found sentiment fell for Republicans as well.
The result is a picture that doesn’t add up neatly. The stock market’s record setting rise can encourage people who are positioned to benefit from future corporate earnings. For others. the bills arrive week after week—gas prices up by more than a dollar per gallon. grocery costs climbing. and inflation rising toward 4%—and the feeling is closer to squeeze than surge.
Dow 50 000 inflation gas prices grocery prices Memorial Day travel stock market confidence K-shaped economy 401(k) Gallup poll University of Michigan survey
Dow hit 50k but my grocery bill is still clowning me.
So like the market is up which means inflation should be down right? But gas is literally higher every week. K-shaped economy sounds like some made-up thing to explain it.
My 401k statement looks amazing (or whatever) but I’m still cutting meat because beef prices are ridiculous. They say “K-shaped” but it feels more like one leg is just falling and the other is pretending not to see it. Memorial Day plans already got wrecked too…
They keep saying confidence is at a low, but the Dow crossing 50,000 is basically the government telling everyone things are fine. I don’t trust it. If gas went up more than a dollar like they said, then the “projected earnings” thing is just corporate numbers not real life. Also, isn’t 50k like usually means everyone’s wealth is up? not how my bank account works.