Topic Key Takeaways
- The economy looks better on paper than it feels in real life. Stocks are up, unemployment is low, and consumers are still spending. That is all true. It just does not mean everyone is doing fine.
- Asset ownership is the dividing line. Homeowners and investors have benefited from rising home prices and market gains, while renters and borrowers have absorbed higher costs with fewer offsets.
- Inflation has not hit everyone equally. Rent, food, insurance, debt payments, and everyday necessities take a much larger share of income for lower-income households.
- For investors, “the consumer” is too broad. That phrase does not tell us enough anymore. The better question is which consumer a business serves, and whether that customer is moving up or down the K.
I’ve been thinking a lot lately about the economy we hear about on television versus the economy people actually experience when they sit down to pay their bills.
Not the economy in aggregate. Not GDP. Not the S&P 500.
The actual day-to-day economy.
And those aren’t always the same thing.
Picture the letter K. One side is moving up. The other is moving down.
The top arm is made up of people who own assets. Stocks. Homes. Businesses. Retirement accounts. Things that have generally increased in value over the past several years.
The bottom arm is people who rent, borrow, carry credit card balances, or spend most of their paycheck on necessities rather than assets.
And that’s the whole point. The same economy can create two completely different experiences depending on whether you own the things going up in value or pay for the things getting more expensive.
If you owned a home before 2020, there’s a decent chance you locked in a low mortgage rate and watched your house become more valuable. That’s not just a statistic of history. It reflects how people feel today. And it’s because that rate changes what they can spend. It changes how much financial flexibility they have.
If you didn’t own a home, the math looks completely different. Rent went up. Mortgage rates went up. Home prices went up. The down payment got harder. The monthly payment got worse. Yet the headlines still say the economy is fine.
That’s what bothers me about relying too heavily on averages. They can tell the truth and still miss the point.
Inflation is the best example. Everyone has felt it, but not necessarily the same way.
If most of your income goes to rent, groceries, insurance, utilities, and a car payment, inflation is not some abstract number on a chart. It’s your monthly budget getting squeezed.
Now compare that to someone who owns a home with a low fixed mortgage, has a retirement account, and owns stocks. They still notice higher prices. Of course they do! But they also had something working in the other direction.
That’s the K-shaped economy in a nutshell.
One group benefited from asset inflation. The other absorbed the burden of everyday inflation.
You can see it in housing. You can see it in credit cards. You can see it in auto loans. Some households are still traveling, upgrading, investing, and spending. Others are trying to make the same paycheck stretch across a much more expensive life.
To be fair, I do not think the bottom arm is collapsing. That would be too dramatic. Jobs are still available. Spending has not fallen apart. Many households are finding ways to adjust. Americans are pretty good at that.
But adjusting isn’t the same thing as thriving.
That distinction matters for investors. I get nervous when people talk about “the consumer” as if it’s one person. It’s not. A high-income homeowner with a growing investment account and a renter carrying credit card debt are both consumers. They are just not living in the same economy.
So when we look at companies, the question isn’t just whether consumer spending is strong. The better question is: Who’s doing the spending?
Businesses tied to wealth, high-income households, travel, premium experiences, rental housing, and essential infrastructure may continue to hold up better than the headline debate would suggest.
Businesses tied to subprime credit, rate-sensitive purchases, and lower- and middle-income consumers may face a more challenging environment. Not because the economy’s broken, but because their customers are under more pressure.
The risk, of course, is that the top arm of the K depends heavily on asset prices. If stocks or home prices fall far enough, or for long enough, the wealth effect can reverse quickly. That’s why I don’t view this as a permanent free lunch for investors. It’s a framework, not a guarantee.
Here’s where I land.
The economy cannot be labeled as simply good or bad. It’s uneven. And uneven economies create uneven winners and losers.
That means investors need to look beyond the averages and ask better questions.
Who owns the assets? Who carries the debt? Who has pricing power? Who is getting squeezed? And perhaps most importantly, which businesses are positioned on the right side of that divide?
If the economy looks fine on paper but feels very different in real life, which economy should investors be paying attention to?
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Disclaimer: Austin Wilson is a Partner and Chief Investment Officer at Hixon Zuercher Capital Management, a Registered investment Advisor in Findlay, Ohio managing over $500+ million assets under management. The views expressed in this blog are solely those of Austin Wilson and do not necessarily reflect the views of Hixon Zuercher Capital Management. Hixon Zuercher Capital Management and its clients may hold positions in securities mentioned. Nothing in this blog constitutes investment advice or a recommendation to buy or sell any security. All investments involve risk, including possible loss of principal. Please consult your financial advisor to ensure any investment aligns with your objectives and risk tolerance. Indices are unmanaged and not directly investable. Any investment in securities, funds, or other financial instruments will involve costs and fees, including but not limited to fund expense ratios, management fees, and transaction costs. This content is provided for informational purposes only and is not intended to comply with the requirements of the Investment Advisers Act of 1940 or any other applicable securities laws. Past performance is not indicative of future results.
