Reassuringly Divided

19 June 2026

• America is witnessing a new industrial economy
• While US consumers are seeing minimal real wage gains
• These trends have important implications for the stockmarket

Economists and strategists have long been taught that the US economy is dominated by consumers, and of course this is borne out by the well-established contribution of consumption to economic growth over time. The estimates for consumption as a % of US Gross Domestic Product (GDP) have typically hovered around 66-70%¹ since 2000, depending on methodology. But consumers’ relative dominance is not a constant and recently new sources of industrial growth are starting to make themselves felt in the world’s largest economy. Much of this is related to artificial intelligence (AI) and other technology investments - think data centres and automation.

For investors this raises intriguing and pertinent questions - is it problematic that the economy is steering away from the consumer, given both its and the stockmarket’s historical reliance on strong and stable consumption? Or is the evolving nature of the economy in fact serving to validate what is happening in the stockmarket? I believe the stakes are high given that US equity market valuations are relatively extended, with the forward price/earnings ratio on the broader S&P 500 being 21.5x as of 11 June versus an average of 18.2x since the end of the 1980s.* SpaceX’s imminent IPO with a fundraising target of USD 75 billion – implying a USD 1.75 trillion valuation² – seems on its own to add to the urgency.

Changing habits - consumption dominates but investment is growing:

Real GDP growth contribution, % change previous year

US consumers feeling the squeeze

Starting with those US consumers, they have certainly not had it easy since 2020. Real wages have barely risen since then³, with data from the Bureau of Labor Statistics suggesting that real wages barely grew by an average of just 0.5% in the year to the end of May 2026.⁴ Simply put, there has been no discernible increase in spending power for most Americans for half a decade.⁵ The reasons for this are numerous but the main issue has been unexpectedly high inflation in the US - and indeed global - economy since the end of the pandemic which has meant that wages, although rising, have just not been able to keep pace. Inequality may also be playing an unwelcome role, with higher-wage, higher-skilled earners keeping ahead of inflation in a way that the rest of the workforce just isn’t.⁶ Either way, in my view, the outcomes are clear in the form of changing habits, including generally more subdued consumption since 2020 and, tellingly, discount retailers such as Walmart faring better than more traditional equivalents such as Macy’s as shoppers seek savings over quality.⁷ The new CEO of Kraft Heinz, Steve Cahillane, put it starkly in early May when he told Bloomberg that “Consumers are literally running out of money toward the end of the month.”⁸

AI is powering a new industrial boom

At the same time, parts of the economy are outright booming, not least in the areas of data centre construction, automation and aerospace and defence. One estimate by Morgan Stanley is for an eye-popping USD 800 billion capex spend this year alone by the technology ‘hyperscalers’, largely on AI infrastructure and data centres.⁹ This new industrial economy does not just sit in parallel to what’s happening to consumers but may already be showing signs of posing a threat to parts of the workforce. AI and automation are often deployed to reduce reliance on labour requirements in commercial and industrial processes, suggesting these trends could prove sustained. The latest GDP contribution figures shown in the chart capture the story succinctly. Personal consumption grew just 1.6% on an annualised basis in the first quarter of 2026.* While it’s true that investment fell in housing, office building and transportation equipment, it outright grew by 43% in technology equipment, 23% in software and 22%* in data centres. The Wall Street Journal recently estimated that in the first quarter of 2026 the ‘AI economy’ grew 31%¹⁰ while the non-AI economy has been very subdued in comparison.¹¹ Furthermore, David Sacks, the US administration’s former AI czar, has not unreasonably predicted that AI will add 2%¹² points to US economic growth in 2026.

The stockmarket is reflecting the new economic reality

This neatly brings us back to the stockmarket which yet again is being dominated by the Magnificent 7 stocks - Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla - as well as other AI-related names such as, for example, high-bandwidth memory producer Micron.¹³ For some, the recent stockmarket gains driven by these technology and associated stocks have become no less than a systemic risk. Bank of England Deputy Governor Sarah Breeden warned in late April that “There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”¹⁴ Indeed, the dissonance in America between robust stockmarkets on the one hand and consumers trading down in their shopping habits amid negative real incomes on the other has become increasingly hard to ignore. It has also re-ignited criticism of the so-called ‘K-shaped’ economy¹⁵ which appears to be benefiting a select few winners while creating an entire cohort of relative losers.

Stockmarket history never repeats itself, but it does often rhyme

As investors though, the changing structure of the economy and stockmarket is something to be expected over time. Railroad stocks have all but disappeared from the S&P 500 (there are just three¹⁶). Oil major ExxonMobil now makes up just 1% of the S&P 500¹⁶ and five of the Magnificent 7 are themselves bigger than the entire oil sector’s market capitalisation.¹⁷ In this sense, America’s new industrial economy should not be viewed with suspicion any more than the ascendancy of say automobile manufacturing in the 20th century. Questions of equality and labour market displacement are certainly valid, and America’s politics may well have to address the potential challenge of lower skilled work and incomes disappearing. Arguably, this will be tougher for the US to adapt to, given the lack of a far-reaching welfare tradition which the typical European would recognise. But for investors focused on return generation, these changes in the economy may provide some degree of fundamental reassurance about what has been concurrently happening in the stockmarket.

Sector moves seem to be telling the same reassuring story

Typical market bubbles are often accused of - and indeed characterised by - being divorced from all economic reality, but a quick survey of the S&P 500’s sector returns so far this year reveals a notable consistency with what’s happening in the real world. Energy is certainly faring well on the back of the Iran war, a feature that could fade in the event of a resolution to the conflict. But more profoundly, technology and industrials are showing exceptionally strong performance while consumer discretionary lags behind, all tying in closely with the described ascent of the new industrial economy. There may be unease behind the stockmarket’s recent performance in some quarters but for those looking for evidence of dislocation with reality, the economy is yet to provide evidence of it.

Makes sense – sector returns appear to tie in closely with what’s happening in the economy:

S&P 500 sector performance YTD to 10 Jun 2026

Julian Howard is Chief Multi-Asset Investment Strategist at GAM Investments. This article represents the views of GAM’s Multi-Asset team.