Welcome to the Great Disconnect: When Record Stocks Meet Record Fears

Unlike so many economic concepts, the so-called “Wealth Effect” is pretty easy to understand: When stock prices and home values increase, consumers feel “richer.” And when folks feel richer, they act richer. Sentiment is upbeat. Their view of the future is positive. They spend more. And the economy grows.

And right now, Americans should feel like they’ve got the future by the horns.

After all:

From a Wealth Effect standpoint, American consumers should feel like they’re on top of the world. Instead — as we’re seeing in headlines like the one earlier from The Wall Street Journal — they’re experiencing a major downer.

(The University of Michigan said that its recent consumer-sentiment index came in at the lowest level recorded in the 70-odd years it’s been running these surveys.)

Times are good. Wealth is high. But consumers are fearful.

Instead of the Wealth Effect, I’m calling it “The Great Disconnect.”

And that “disconnect” tells us a lot about what’s in store for everyday Americans — the workers, consumers and investors who help comprise the Middle Class. It tells us quite a bit about what’s next for the wished-for and sought-after American Dream. It spotlights the surging concentration of wealth at the Top 10% (and Top 1%) of the economy — and the growing chasm separating the haves and have-nots.

And perhaps most important of all, it underscores yet again the path needed to travel in order to survive and thrive in whatever comes next for stocks, the job market and the increasingly flinty realm known as “geopolitics.”

So lets talk about that Great Disconnect strategy — starting with the factors that are helping short-circuit the Wealth Effect for all but America’s “top-percenters.”

Risk and Reward/Reward and Risk

When economists talk about the Wealth Effect, they’re talking about your personal “balance sheet”— not your paycheck. It’s basically how much more someone will spend for each $1 of new wealth they accumulate.

Though stocks are sexier – and dominate the headlines – housing has a bigger psychological effect … with the rough rules being:

• For every $1 increase in stock wealth → 2 cents to 5 cents of additional spending.

• And each $1 increase in home value → 4 cents to 8 cents more spending.

The practical impacts:

• For every $100,000 in stock gains, you’re talking about roughly $2,000 to $5,000 more annual spending.

• And for every $100,000 increase in home equity, you’re talking about a yearly spending bump of $4,000 to $8,000.

There’s a “big picture” to all this, where a 10% rise in overall household wealth leads to a 1% increase in consumer spending — a crucial element since that spending accounts for 70% of GDP.

Here’s where the modern American economy gets tricky.

In the mid-1980s — when I started my career as a business reporter — there were certain “rules of thumb” I knew to be true. So-called “structural unemployment” was believed to be 5% — meaning the peacetime U.S. jobless rate couldn’t fall below that point. And consumer spending accounted for 60% of GDP.

Neither rule holds true any longer. Joblessness hit a 55-year low of 3.4% in early 2023. And consumer spending is now more important (70%) and more concentrated — more driven by the affluent households who (not surprisingly) control the bulk of America’s wealth.

The Top 10% of earners now account for as much as 50% of U.S. consumer spending, says CBS News. So about half of the economy is now driven by one-tenth of its households. That same Top 10% controls 67% of America’s wealth, says the St. Louis Fed. And the Top 1% controls more than 30% of U.S. wealth, the regional Fed says.

That growing concentration has also concentrated risk — creating a “Reverse Wealth Effect” threat experts have nicknamed the “Jenga Tower Economy.” Pull out just enough of the “right” blocks and that “tower” — the U.S. economy — tumbles … hard.

“It makes the economy highly vulnerable if anything goes off the rails for those high-income, high-net worth households,” Mark Zandi, the chief economist for Moody’s Analytics, told The Los Angeles Times in early November. For instance, a correction in stocks “would knock the wind out of these high-income households — the last pillars of strength in the economy — and raise the risks of recession.”

Those “Out-of-Whack” Contradictions

I’ve been telling you about the “Middle Class Squeeze” — and the “Death of the American Dream” — for some time. It’s that dour Middle Class view that’s driving the “Great Disconnect.”

The economy, right now, is strong in the aggregate. But that concentrated wealth means the Wealth Effect is weak (or nonexistent) for a huge swath of everyday consumers.

Put another way: If folks act richer when they feel richer, this “Great Disconnect” is a reality-vs-sentiment paradox that says America’s housing-and-stock markets have created “actual wealth” faster than they’re creating the “feeling” of wealth.

So what are some of the specific contributors to this “Great Disconnect?” And what can you do to take control?

I came up with a “Bonus Baker’s Dozen” of 14 disconnect paradoxes – and some moves you can make to protect yourself.

No. 1: Stocks vs. Sentiment

• ✅ Stocks: Near record highs.

• ❌ Sentiment: Near historic lows
  → Michigan consumer sentiment index down around 44–45 in May – right around a historic trough.

Call to Action: The economy can look strong on paper—and still feel fragile at the kitchen table. Focus on your “personal economy.” Take personal stock: How secure is your job, your spouse’s job and the household “income stream?” Problems are better addressed when anticipated. And if there’s no problem, don’t succumb to negative outside influences.

No. 2: Strong Economy vs. Miserable Mood

• ✅ Reality: U.S. growth tops most developed economies, unemployment is low, spending is holding.

• ❌ Perception: Consumers feel like they did during the Great Financial Crisis.
  → Fed research: Sentiment unusually low despite solid income and spending.

No. 3: People Spending vs. Saying “I’m Broke”

• ✅ Behavior: Americans still buying more than in 2019.

• ❌ Surveys: I feel “worse off” financially.
  → Verified spending strong even among pessimistic households.

Call to Action: Review your finances — your stocks, retirement, savings accounts and cash. Are you ahead, behind or right on your plan? Assess your professional income and investment income. Stack that up against expenses.

No. 4: Record Wealth vs. Deep Inequality

• ✅ Total Wealth: More than $170 trillion in household net worth.

• ❌ Concentrated: About a third of that wealth owned by Top 1% (a record).

Call to Action: You’ve heard me say it … and I’ll say it again and again: There are only two kinds of investors — Wealth Builders and Wealth Killers. We’re Wealth Builders. It’s never too late to take control. One place to get started: Read my new e-book: Wealth Builder/Wealth Killer: Keep Your Cool and Win in a Stock Market Built to Break You.

No. 5: Booming Markets vs. Participation Gap

• ✅ Driver: Stock market gains fuel wealth, and more American adults (61%) own stocks today than a decade ago (52%).

• ❌ Reality: Stock ownership concentrated among higher-income households.
  → Distribution is heavily skewed: Wealthiest 10% account for 87% of stocks held by households, and Top 1% owns more than half, Gallup News says. Bottom half owns 1%.

Call to Action: The name of our research service — Stock Picker’s Corner (SPC) — says it all about what we believe: Individual stocks — carefully chosen — are one key to a wealthy life. We talk about our highest-conviction, long-term ideas in our Model Portfolio. And we’ve developed some more intermediate-term opportunities — presented in our Special-Situation Portfolio. And, here at SPC, we get ahead of the big “storylines.” This week’s IPO of SpaceX (SPCX) has been one of the biggest headliners in recent months — and was a “seal of approval” on the Space Economy storyline we’ve been talking about here for two years. Even better: We didn’t wait for the IPO to get you started. I recommended this “space stock” last year — and have been talking about it since late 2024. Folks who acted are sitting on gains ranging from 74% to 1,035%. And we believe it’s just getting started.

No. 6: Aggregate Wealth vs. Median Reality

• ✅ Top 10%: Controls about 67% of U.S. wealth.

• ❌ Bottom 50%: Holds about 2.5%
  → Massive skew in balance-sheet reality, says the St. Louis Fed.

Call to Action: As I told you here, a recent “reality show” by mega-influencer MrBeast sure says a lot about wealth in America — and the increasing elusiveness of the “American Dream.” Here’s the good news: The American Dream doesn’t matter – only your dream does. That’s a lesson most folks never learn. Tune out the noise. Pursue your plan … and your goals … and do it the right way. Do that and you’ll win.

7. Income Growth vs. “I’m Worse Off”

• ✅ Wages: Growing modestly (at an annual rate of 3% to 4%)

• ❌ Perception: About 48% say they’re worse off than they were a year ago, says the Federal Reserve Bank of New York.

→ Consumers also less optimistic about the future.

Call to Action: Be sure your income investments are generating “real income” — so they deliver actual cash flow after accounting for taxes, inflation and market interest rates. Check out our “income playbook” — and also this new income addition to our Model Portfolio.

No. 8: What Stocks Giveth, Inflation Taketh Away

• ✅ : The Bull Market: The three key stock indices – the Dow, S&P and Nasdaq — have set strings of records this year.

• ❌ Inflation: Inflation has risen for three straight months — topping 4% for the first time in three years.
  → Affordability issues dominate household fears.

Call to Action: Gold and silver may be taking a breather — but that’s all it is … a breather. We’ve been talking about silver since it was in the mid-$20s and gold since way before the last presidential election. Here’s a roster of top metals plays that’s free to all SPC readers. And here’s my favorite silver and gold stocks.

No. 9: Record Debt vs. “Manageable” Ratios

• ✅ Total debt: Household debt stands at $18.8 trillion, an all-time high.

• ❌ Manageability: Debt service ratio of 11% is well below the pre-GFC peak approaching 16%.
  → The headline number dominates; 42% of Americans recently said they’ll be in debt “until they die.”

Call to Action: I know it sounds like “Personal Finance 101,” but it’s still worth doing. Turn off Netflix, switch your smartphone to silent, pull out your debt statements and take an honest look about what’s coming in — and what’s going out. Even if your “debt-service ratio” is manageable, see where you can cut. And if you find some savings, you can reduce some of your other debts — or use that “found money” to create some dry powder for opportunities to come.

No. 10: Healthy Jobs Market vs. Employment Anxiety

• ✅ Jobs: Still relatively abundant

• ❌ Fear: Near-term layoff fears surging. Americans realize they lack sufficient “emergency funds.”

No. 11: AI Boom vs. AI Fear

• ✅ Corporate View: Productivity revolution.

• ✅ Investor View: Best investment opportunity they see.

• ❌ Worker View: 53% fear AI will lead to a job loss in their household.
  → 64% rank job eradication as their No. 1 AI fear.

Call to Action: The AI Boom is taking many forms — and is creating many opportunities. Semiconductor companies are an obvious play. I still like heavyweight Broadcom Inc. (AVGO), which has richly rewarded SPC readers over the last two years. Energy —and this company — is one. A company like Hallador Energy Inc. (HNRG) is another. There are also AI Agents — a sector the other co-founder of SPC has researched in great depth.

No. 12: Consumer Balance Sheets vs. Rising Stress Signals

• ✅ Aggregate Finances: Still relatively solid.

• ❌ Warning Signals Flashing: U.S. consumer delinquencies their highest in a decade.

Call to Action: Keep some powder dry. Wealth Builders aren’t just investing for today — they’re “Next Bull Market” investors. They position themselves today for the next selloff — which is inevitable. We did this here together following that historic selloff in April of last year. Remember: Bull markets make money; bear markets create fortunes.

No. 13: Growing Opportunities vs. “Rigged Game”

• ✅ Opportunities: New ways to invest/build wealth keep emerging.

• ❌ Consensus View: Growing sense system is “rigged”
  → Everyday Americans see a wall between them and wealth.

Call to Action: With online-betting, prediction markets and speculative-options trading all surging, it’s clear that everyday Americans are trying to find a way to beat that “rigged game.” But they’re losing billions in the process. And Lesson No. 1 about gambling is this: “The House always wins.” So own “The House” — in this case, CBOE Global Markets (CBOE), which acts as “The Casino” in the speculative options market. CBOE collects fees on the trades themselves — no matter who wins or who loses. It also owns the “Fear Gauge” — the VIX — which surges when things go south. The stock has done well since we brought it to readers. And it’s recently pulled back — just in time for the next disaster du jour.

No. 14: Macro Resilience vs. Micro Fragility

• ✅ Macroeconomy: Corporate earnings solid, overall growth strong, Washington backs “reshoring.”

• ❌ Households: Feeling the affordability squeeze, freaked out by the daily headlines.

→ Perception is reality for regular folks, who feel “disconnected” from a secure “good life” and see a deep-and-threatening chasm nearby.

Call to Action: There’s a “flipside” to the Wealth Effect. It’s “asymmetric.” Because people react more strongly to losses than to gains, a $1 drop in perceived wealth tends to reduce consumer spending more (and more quickly) than a $1 gain increases it. This is what makes asset bubbles particularly dangerous. That’s why our Accumulate strategy is so powerful.

Bottom Line

If you see this “Great Disconnect,” you’re not imagining it—you’re seeing (and perhaps experiencing) a real phenomenon.

There’s a massive gap between reported “data” and “daily life.”

Don’t get sucked in. Be self-reliant. Be a winner. Take control.

Be a Wealth Builder, not a Wealth Killer.

We’re here to help;