What is a K-shaped economy? Good morning everyone and welcome back to Finance Friday. The 1st half of the year is over. We had some highs (S&P 500 had a total return of 8.2%) and some lows (War in Iran = high gas prices). We said goodbye to Jerome Powell and welcomed a new Federal Reserve President, Kevin Warsh. We witnessed the largest IPO in history (Space X). We had social issues divide us and we had a World Cup run that untied us. Needless to say, it was a very active 1st half of the year.
So far this year, you’ve heard buzz words like AI, Data Centers, Inflation etc. Today we’re going to talk about what I consider to be the most talked about term so far this year: The K Shaped Economy.
So, what is the K Shaped economy? It’s when one group of Americans is doing very well economically, evidenced by the increase in their asset prices, home’s equity, and portfolios. Meanwhile, another group is getting squeezed by higher prices on gas, groceries, rent, etc.
The data shows that the top 10% of households now account for roughly half of all consumer spending. You can see it in the travel industry , as numbers show more Luxury travel is being booked and premium cabins on airlines being sold out. Meanwhile, the retail and fast-food industries are noticing decreasing sales as their customers are getting stretched.
So, what can we do about this economy? For those of you with a Financial Plan, remember that the plan was built around your goals, time horizon, and your risk tolerance. A K-shaped economy does not change any of that. If you’re invested in the market, stay diversified. If you aren’t sure about your allocations, speak with your advisor to confirm. More than likely, you own companies on both sides, here and abroad, large and small, value and growth. That is by design. If you have neither, creating a solid budget plan, cutting back on unnecessary expenses and shopping different companies can help to lower the cost burden.
Remember to submit your questions and thoughts on our discussion to hector@hrcfin.com. Don’t forget to follow HRC Financial on Facebook and LinkedIn for more Finance Friday Tips and Insights.
Thank you again everybody for your time and have a wonderful weekend!