Shares increase the temper of the rich. A pause within the labor market may put an finish to this

Shoppers look at a canned fish display at Market 32 ​​supermarket in South Burlington, Vermont, on November 4, 2025.

Robert Nickelsberg | Getty Images

With stock market investors supporting economic sentiment, some economists are wondering whether a loose labor market could pull the rug out from under them.

The University of Michigan’s widely followed consumer sentiment index slipped more than 6% in November, nearing its all-time low and about 30% below a year earlier. According to poll director Joanne Hsu, respondents were worried that the long-term government shutdown would weigh on the economy.

But at least one group bucked the bad sentiment: those with the most stock holdings.

Those with significant wealth in the stock market reported an 11% improvement in sentiment, which Hsu linked to the stock market’s recent rally to all-time highs.

The conventional wisdom is that wealthier consumers will continue to spend as long as they feel comfortable with their own situation and see their investments grow, which boosts the economy and corporate profits. But now other economists fear that federal jobs data, once available again, could paint a bleaker picture of the economy and trigger a market sell-off that would erase the rosy outlook.

“It depends on the labor market,” said Luke Tilley, chief economist at M&T Bank and Wilmington Trust. “Once you start getting negative job prints, that’s the end of it.”

K-shaped economy

Economists told CNBC that the stock market behaves as if the economy is “K” shaped, with the best performers thriving while the bottom performers struggle.

Investors expect the top end of the “K” to continue to do well and spend some of their disposable income. The group’s resilience even in the face of high tariffs this year and stocks’ brief swoon in April have eased concerns about the likelihood of the economy slipping into recession soon.

RSM chief economist Joe Brusuelas, for example, said that while he doesn’t expect top consumers to collapse and trigger a recession, the Michigan survey data highlights “significant market stress” for lower-end consumers who don’t own stocks and don’t benefit from artificial intelligence trading.

“Elevated equity valuations partially mask the ongoing downward structural shift in the economy – which does not favor those working in traditional industries,” Brusuelas said. “It suggests that [a] a very highly segmented economy with different realities depending on which economic decile you live in.”

In other words, how much money you make and how many investments you hold.

Also housing assets

The wealthiest consumers are also likely to benefit from rising home prices and, in many cases, low mortgage rates during the Covid pandemic, according to Jeffrey Roach, chief economist at LPL Financial. That’s another reason for optimism in this group – even if this year’s stock market rally is losing momentum, he said.

The scale S&P 500 is up more than 16% in 2025 (excluding dividends) and is on track for its third successful year in a row. The technology-heavy one Nasdaq Composite is up nearly 22%, underscoring continued enthusiasm for AI.

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The S&P 500 and the Nasdaq Composite in 2025

Roach said the expected business benefits of President Trump’s “big, beautiful bill” warrant some market excitement, and the promise of profits from AI could entice investors to buy stocks with lofty valuations.

Looking at the contractions

How long the economy will continue to rely on top consumers could depend on the state of the labor market, Roach said.

With less immigration under the Trump administration, it could become easier to return to the workforce as long as demand continues. That, in turn, could boost household incomes and help the economy avoid a potential recession, Roach added.

But Tilley of M&T Bank and Wilmington Trust said the warning signs are flashing. This includes data showing that small businesses are shrinking their payrolls. Even before the government shutdown halted recent labor market reports, nonfarm payrolls appeared to be showing signs of weakness.

As employment slows, it becomes harder for investors to bet on the top end of the “K” shaped economic holding company. The idea that wealthy consumers can single-handedly boost demand feels “inverted” in explaining why the stock market has hit record highs despite job market uncertainty, said Tilley, who was an economic adviser to the Philadelphia Federal Reserve for nearly six years before joining Wilmington Trust.

“History shows that when there is negative job talk, the economy and the market follow suit,” Tilley said. “We are concentrating 100% on the labor market and see many weak points there.”