How Affordability Led to a Chasm Between Stock Prices, Consumer Optimism

Why It Matters

The gap threatens economic stability, as sustained equity gains are essential for spending by high‑income households, while declining consumer confidence could dampen overall demand and influence upcoming elections.

Key Takeaways

• Stocks rise while consumer optimism hits near‑record lows
• Affordability pressures stem from 26% price increase since 2019
• AI‑focused mega‑caps drive market gains, not consumer spending
• Top 10% households account for 49% of Q2 2025 spending
• Housing costs consume 38% of typical family income

Pulse Analysis

The recent decoupling of equity markets from consumer confidence marks a rare break in a historically tight relationship. Data from J.P. Morgan and Oxford Economics show that while the Dow and S&P 500 have climbed to record highs, the University of Michigan sentiment index fell 40 points below its projected level for 2025. Analysts point to a “vibecession” driven by persistent affordability challenges, suggesting that traditional macro‑indicators no longer predict household mood.

Affordability pressures stem from multiple fronts: a 26% rise in overall consumer prices since 2019, mortgage rates hovering above 6%, and a labor market that offers few new openings despite low layoff rates. Homeowners now allocate roughly 38% of income to housing, far exceeding the HUD benchmark of one‑third. Meanwhile, a “low‑hire, low‑fire” environment limits wage growth and erodes work‑life balance, deepening the sense of economic strain among middle‑ and lower‑income families.

In contrast, the market’s upward trajectory is powered by a handful of AI‑focused mega‑caps—Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla—whose earnings are less tied to consumer spending. Their massive data‑center investments boost GDP but generate limited jobs, reinforcing a K‑shaped growth pattern where the top 10% of households account for nearly half of consumer expenditure. Policymakers and investors must watch whether equity gains can sustain this wealth‑driven spending, as a prolonged split could pressure the Fed, influence the 2026 midterms, and reshape the broader economic outlook.

How affordability led to a chasm between stock prices, consumer optimism

By Greg Iacurci · Published Tue, Feb 10 2026 8:30 AM EST

Key Points

• Stock prices have marched higher in recent years while consumer sentiment has fallen, according to economists.

• Consumers' mood has soured amid perceptions around deteriorating affordability since around 2022.

• The stock market has risen on the back of enthusiasm for artificial intelligence and mega‑cap technology companies, whose heavy investment in AI data centers has buoyed the broader economy.

• Consumers are concerned about high prices, housing and a frozen job market.

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A trader works as the Dow Jones Industrial Average surpasses the 50,000‑mark on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., Feb. 6 2026.

Brendan McDermid | Reuters

There’s a disconnect between the stock market and consumer optimism — and some economists say affordability is a primary culprit.

Over the last four to five years, the stock market has become divorced from consumer sentiment: stock valuations have surged while consumer optimism has plunged to near‑record lows, economists said. The dynamic is atypical, said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank.

“It really breaks the 25‑year relationship between the two series,” Seydl said.

Prior to 2022, stock markets and consumer sentiment largely moved in sync, shifting up and down based on prevailing economic conditions. When times were good, both moved upwards in tandem, and vice‑versa.

A separate analysis by Oxford Economics found a similar dynamic. The University of Michigan’s consumer sentiment index should have ended 2025 at a value of 93, based on indicators like stock prices, unemployment and inflation, according to that Oxford Economics study, published Jan. 27. Instead, it was 40 points lower, near an all‑time low.

“Historically, household perceptions of the economy closely tracked key macro‑economic indicators,” Oxford Economics wrote. “Today, those indicators suggest consumers should be feeling significantly more upbeat than they do.”

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Impacts of the “vibecession”

Measuring how consumers feel — and how that sentiment relates to the stock market and the broader economy — is important since consumer spending accounts for the bulk of U.S. economic output, said John Canavan, lead analyst at Oxford Economics.

The so‑called “vibecession” — the sour mood among consumers — is likely due to their views on affordability, Seydl said.

“Affordability is sort of this catch‑all term for widespread dissatisfaction by consumers of current economic outcomes,” Seydl said.

The dynamic could have repercussions for the overall economy, the outcome of upcoming midterms in November and policies pursued by lawmakers ahead of those elections, analysts said.

“Affordability was important in the 2024 election,” Seydl said. “The thing that helped Republicans do so well in that election is now a potential vulnerability as we head into the 2026 midterm elections.”

“The Trump administration is hyper‑focused on this,” he added.

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Why affordability is a concern

Economists point to several factors eroding the sense of economic well‑being:

Overall prices are “sharply higher”

While inflation has throttled back, the overall price level for U.S. goods and services is much higher than it was before the Covid‑19 pandemic. Average consumer prices increased by about 26 % from December 2019 to December 2025, according to the Bureau of Labor Statistics.

“Prices are sharply higher than they were five years ago,” Canavan said. “It’s still very uncomfortable for most consumers to look at prices today, even if inflation — or the rate of price growth — has slowed considerably.”

Homeownership costs

Homeownership costs have also surged. Average rates for a 30‑year fixed‑rate mortgage were just over 6 % as of Feb. 5, down from a high of about 8 % in 2023 but still considerably higher than pre‑pandemic levels. The typical family spends about 38 % of its income on housing to cover the mortgage on a new home, according to a February 2025 analysis by the National Association of Realtors. The U.S. Department of Housing and Urban Development defines an “affordable” home as one whose monthly payments do not exceed roughly a third of the household’s gross income.

A frozen labor market

Many consumers feel shut out of the current “low‑hire, low‑fire” labor market. Hiring has stalled at one of its lowest levels in more than a decade, and layoffs are also at historically low levels, creating few open roles for job seekers and new entrants. Jobholders may also feel less flexibility, as employers gradually call employees back to in‑person work and strip away pandemic‑era hybrid and remote options, worsening work‑life balance.

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Artificial intelligence and technology

What’s been propping up the stock market and the economy amid such a sour mood? Artificial intelligence and technology, economists said.

The market’s rise is largely driven by a handful of mega‑cap technology companies — the “Magnificent Seven”: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. With some exceptions like Amazon, these firms don’t rely heavily on consumer spending, meaning consumer sentiment hasn’t driven their surging share prices.

These companies have also spent heavily to build data centers that underpin AI growth. That investment has helped propel U.S. economic growth in recent years but won’t create many jobs or lift incomes relative to more labor‑intensive sectors such as leisure and hospitality, education, and health care.

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K‑shaped economy

High‑income households have been propping up the stock market and broader economy. Consumers in the top 10 % of the income distribution accounted for more than 49 % of consumer spending in Q2 2025, the highest level since data collection began in 1989, according to Mark Zandi at Moody’s Analytics. The Federal Reserve Bank of Dallas found a similar trend: consumer spending among the top 20 % of households is up 4 percentage points over the last three decades, to 57 %.

This “K‑shaped” growth — spending increases for those at the top but falls for those at the bottom — may pose economic risks. Maintaining spending levels among the wealthy likely depends on the stock market remaining strong.

Stocks are disproportionately owned by high‑income and wealthy households. Their spending is guided by a “wealth effect,” whereby sizable stock earnings make them feel richer and spend more freely. However, there is uncertainty about how long that can last.

“It partly depends on how long the equity gains can continue,” Canavan said.