Stocks are buoying wealthy sentiment. A labor market break could end that

While stock market investors support economic sentiment, some economists wonder whether a looser labor market could resolve the situation.

The University of Michigan’s widely followed consumer sentiment index lost more than 6% in November, nearing all-time lows and down nearly 30% from a year ago. Respondents were concerned that the long-running federal government shutdown would negatively impact the economy, according to poll director Joanne Hsu.

But at least one group broke the tone: Those who own the most stocks.

Individuals who have a large stock market fortune 11% improvement It’s a sentiment that Hsu attributes to the stock market’s recent rally to all-time highs.

The conventional wisdom is that wealthier consumers will continue to spend as long as they feel good about their circumstances and see their investments growing, strengthening the economy and corporate profits. But now other economists worry that federal employment data when it resumes could paint a darker picture of the economy and catalyze a sell-off in the market, casting cold water on positive outlooks.

“It comes down to the labor market,” said Luke Tilley, chief economist at M&T Bank and Wilmington Trust. “If you start getting negative business pressure, it’s too late.”

K-shaped economy

Economists told CNBC that the stock market behaves like an economic “K”, with the top off thriving and the bottom struggling.

Investors are counting on the “K” cap to do well and spend some of their discretionary income. The group’s resilience this year in the face of higher tariffs and even a brief drop in shares in April has eased concerns about the economy potentially falling into recession soon.

RSM chief economist Joe Brusuelas, for example, said that while he doesn’t expect high-end consumers to crack up and cause a recession, the Michigan survey data underscores “serious market stress” on lower-end consumers who don’t own stocks and don’t benefit from AI trading.

“Rising stock valuations partially mask the ongoing structural transformation of the economy in the submarket, which is not in favor of workers in traditional industries,” Brusuelas said. he said. “It points to [a] “It’s a highly segmented economy with different realities depending on the economic decile you live in.”

In other words, how much money you make and how much you invest.

housing wealth

The best-off consumers are also likely to benefit from rising home prices on their properties and, in many cases, lower mortgage rates achieved during the Covid pandemic, according to Jeffrey Roach, chief economist at LPL Financial. Even though this year’s stock market rally has lost momentum, that’s another reason for optimism among this group, he said.

Criterion S&P 500 It’s up more than 16% in 2025, excluding dividends, and is on track for its third consecutive winning year. Technology-oriented Nasdaq Composite It rose nearly 22%, underscoring the continued excitement around artificial intelligence.

Roach said the business benefits expected from President Trump’s “big beautiful bill” justified some froth in the market, and the promise of profits from AI could encourage investors to buy high-value stocks.

eye on labor

How long the economy remains dependent on the top consumer group could depend on the state of the labor market, Roach said.

With immigration decreasing under the Trump administration, returning to the workforce may become easier as long as demand remains. This, in turn, could boost household incomes and help the economy avoid a possible recession, Roach added.

But M&T Bank and Wilmington Trust’s Tilley said warning signs are flashing. These include data showing that small businesses’ payrolls are shrinking. Even before the government shutdown suspended the latest employment reports, nonfarm payrolls appeared to be showing signs of weakness.

If employment softens, it will be harder for investors to invest in the top end of the “K”-shaped economy holding company. Tilley, who was an economic adviser to the Philadelphia Federal Reserve for almost six years before joining Wilmington Trust, said the idea that wealthy consumers could single-handedly support demand feels like “reverse engineering” to rationalize why the stock market is jumping to records despite uncertainty in the job market.

“History shows that you start getting negative business pressures, and the economy and the market will follow suit,” Tilley said. “We are 100% focused on the labor market and we see a lot of chinks in the armor there.”