What is a “K”-Shaped Economy? Stock Market Update, Friday November 21, 2025

I think, in bit of an attempt to make economics more understandable to the masses, many financial commentators have over the years tried to reduce pretty complex economic theories into basic shapes, or nowadays a single letter in the alphabet.  First there was the V”-shaped economy that was meant to show a steep decline into recession, but an equally as fast recovery out. There was the “double dip” economy designated by a “W”, where the economy shrank into recession, began to grow, slipped back into a brief contraction only before picking up speed again on the growth side.

Most recently, many in the economics world have introduced a new shape and letter into our financial lexicon.  The letter K. This letter is being used to describe an economic recovery where different demographic groups experience different results. Unlike a V-shaped recovery where theoretically everyone gains equally or at least at least at the same rate. The K means, some areas do well and gain, while others suffer and decline, leading to a divergence in wealth and opportunity.

In the current K-shaped recovery, the overall GDP of our economy is growing, currently at 3-4%, but it’s highly concentrated and fewer workers believe they are benefiting. Currently the “AI” infrastructure buildout is accounted for a large proportion of incremental GDP growth.  That infrastructure spending is helping drive up a number of large cap tech stocks that are heavyweights in the S&P500.  At the same time, this capex spending is contributing to a continued higher level of prices on energy and materials. At the same time, layoffs at a number of larger tech companies is causing a great deal of job anxiety to college students graduating and entering the workforce as well at workers making $100-250k per year who are fearing that AI automation will eliminate their jobs.

Currently, those individuals with larger stores of wealth, fixed assets like houses and investment assets like stocks, might feel pretty good about the economy while many others who don’t have savings or larger stores of fixed assets, don’t. The general idea here seems to be that only the rich and the super-rich are doing well in the economy today. They own all the assets. They spend all the money. They get to travel, buy cars, and homes, and wnjoy life while many others are struggling.

For the lower and middle-class, a K-shaped recovery means that these economic times remain very difficult. Employment in the hospitality and food service sector factors heavily for the lower middle-class, and clearly these businesses are struggling under the weight weakening consumer spending there, migrant deportations affect demand, as well as job insecurity fears.

While it is hard to quantify in real time, particularly with a lot of missing economic statistics due to the recent government shutdowns. Our investment team reviews hundreds of earnings conference calls quarterly.  It’s really hard to argue against the concept of a “k-shaped economic recovery currently when an investor hears one week that “foot traffic” at a well-known $10 burrito restaurant was flat to down in the late third quarter, but the next week an investor hears that sales at Cartier and in luxury jewelry was up 17% YTY, and  up from 11% last quarter.  Yes, the rise in gold and platinum prices helped their results but those results are also AFTER the added costs of import tariffs into the US.

What’s this K-shape dynamic mean for you and your money if you are an investor? It probably means many shoppers are out looking for a deal on price.  That there are more shoppers at Walmart and off-price retailers than you remember a few years ago, and probably fewer at Target. It might mean consumers might have been cutting back on planning next year’s vacation or even smaller affordable weekly “luxury’s” like that daily or weekly purchase of a triple foam upside down, caramel macchiato.  That even those smaller purchases might be pushed out to a monthly splurge or they might be cancelled altogether until one feels more secure about their job and future advancement.

It might mean that many online resale companies might be doing quite well as many consumers look to raise a little extra cash by selling some of their “gently used” merch on line in front of the holidays.

From an interest rate and Fed policy perspective, it might mean that the Fed is less dovish or less willing to cut interest rates materially over the next year fearing higher inflation or seeing already high asset prices which might keep the housing market slower than buyers need or sellers want.

With all this said, investors and followers, know that regardless which letter the economy takes or follows over the next few months, our financial planning and advisor teams will be here for our clients to advise them.

Until next week, have a blessed weekend and know that the OHFG team is doing what we can to plan for you and your family’s future regardless of what stage you are at in your career or retirement.

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