Why the stock market and economy may seem out of sync
Investors work on the New York Stock Exchange during morning trading on July 08, 2026 in New York.
Michael M. Santiago | Getty Images
Stocks rose rapidly in the first half of the year. Meanwhile, economists stated that the course of the US economy was more moderate and slightly different from that of stocks.
This disconnect can be confusing for consumers and investors, who assume that the stock market and the economy mirror each other and move in tandem.
“I think there’s a widespread perception that the two should be compatible,” said Joe Seydl, senior market economist at JP Morgan Private Bank.
“But from a purely analytical perspective, these are two very different phenomena,” Seydl said. “In many ways, we’re talking about apples and oranges.”
Stock market and economy are separated
Meanwhile, “real” U.S. gross domestic product (a measure of economic output after inflation) has fallen from 3.3 percent in 2023 to roughly 1.9 percent so far in 2026, Seydl said.
Of course, the situation of the US economy is not necessarily bad. Seydl said the growth rate was “stable.”
Moody’s chief economist Mark Zandi described GDP growth of around 2 percent as “soft.” He said it was roughly the same level as last year.
“We’re growing. We’re not in a recession,” Zandi said. “But we’re not going anywhere fast.”
Federal Reserve officials in June estimated Zandi said the economy will grow by 2.2% in 2026. Zandi said the consensus among economists is largely centered around a 2% growth forecast for the year.
Meanwhile, the labor market is also showing weakness, Zandi said. Labor force participation is near its lowest level in nearly 50 years, barring the Covid-19 pandemic. Employers hiring at slowest pace over 10 years, excluding the pandemic. long term unemployment rose steadily.
Additionally, consumer confidence fell to a record low in May due to fears of higher inflation, according to the University of Michigan Consumer Research. Sentiment rebounded slightly in June but is still ongoing”unfavorable” he said.
Zandi said the stock market and the economy generally “move together” but sometimes “deviate quite significantly.”
“And this is one of those times,” he said.
Why the difference?
Economists say the main reason for this difference is artificial intelligence.
Zandi said shares of AI companies were “skyrocketing” and buoying the broader stock market.
Technology makes up about 35% of the stock market, plus roughly 50% when considering an expanded technology stack that includes: Alphabet, Amazon, Meta And Tesla’s These are classified as consumer companies but trade like Big Tech, Seydl said.
Stocks generally trade based on future expectations of company performance, and in the current environment, investors are incredibly optimistic about the earnings potential of technology companies, especially companies in the artificial intelligence space.
“The growth in earnings has been concentrated in large ‘big tech’ firms, particularly semiconductor companies and hyperscalers supporting AI infrastructure,” Capital Economics said in a July 1 research note.
Hyperscalers like: MicrosoftAmazon and Seer While providing cloud computing infrastructure, semiconductor companies also IntelIt was stated that TSMC and Samsung produced artificial intelligence chips.
These two groups of companies have accounted for almost two-thirds of the growth in S&P 500 earnings since the end of 2022, it was noted shortly after OpenAI released the free version of ChatGPT to the public.
Meanwhile, technology accounts for only 10% to 15% of the U.S. economy, Seydl said.
The U.S. economy instead is powered by consumer spending, which accounts for about 70% of GDP, Seydl said.
While consumer spending remains strong — which is good for the economy — it is increasingly supported by higher-income households, a dynamic that threatens to sink the economy if things go wrong, economists said.
According to Moody’s analysis published in June and written by Zandi, households in the top 20 percent (those with incomes of about $200,000 or more) account for about 60 percent of personal spending; this rate was half that in the early 1990s.
In many ways, we’re talking apples and oranges.
Joe Seydl
Senior markets economist at JP Morgan Private Bank
Spending for the top 20 percent increased by about 4 percent following inflation in the first quarter of 2026, while spending for the bottom 80 percent remained unchanged. This so-called K-shaped dynamic has continued since the pandemic, he wrote.
Wealthy households own the vast majority of stocks and tend to spend more liberally when the market is on the rise, economists say. This is due to the “wealth effect”: They feel richer and spend more as a result.
Economists have said that if investors don’t like the AI investment thesis and the stock market experiences a prolonged decline, the wealthy pulling back on spending could be bad news for the economy.
There are also pressures beyond AI, such as the possibility of a renewed war between the United States and Iran. Inflation is also running well above the Fed’s target, putting pressure on household budgets.
“If AI stocks had a slide, they would be in deep trouble because the economy is so soft,” Zandi said. “It’s a very fragile and weak place.”
