Every time I walk into a big-box store these days, I can’t help but wonder: who is actually buying all this stuff? The parking lots are full, the carts are overflowing, yet the headlines keep screaming that people are broke. It feels almost schizophrenic — and honestly, that’s exactly what the data shows right now. The U.S. consumer isn’t just “mixed.” It’s living two completely different realities at the same time.
The K-Shaped Consumer in 2025: A Tale of Two Americas
We’ve all heard the term K-shaped recovery thrown around since the pandemic, but right now it’s not just a catchy phrase — it’s the single most important thing any investor needs to understand. One arm of the K is shooting upward. The other is sliding down, fast.
Let me paint the picture with numbers that actually matter to your wallet.
The Top Half Keeps Spending Like It’s 2021
Higher-income households — think the top 20-30% — have never had it better. Their home values are up massively since 2020. Their stock portfolios are at all-time highs. Many locked in 3% mortgages and have zero incentive to move. Cash savings? Still elevated compared to pre-pandemic levels.
These are the people buying $1,200 Canada Goose jackets without blinking, booking international trips, and trading in perfectly good cars because they feel like it. They’re the reason luxury retail numbers look bulletproof and why companies catering to this crowd continue to crush earnings.
The wealthy didn’t just recover — they accelerated. Their spending power today is materially higher than it was five years ago.
In my view, this explains why certain retail names have completely detached from reality. When you see a stock trading at 45 times earnings while the broader market frets about recession, chances are it’s feeding almost entirely off this upper-income cohort.
The Bottom Half Is Running on Fumes
Meanwhile, the majority of Americans are in a very different movie.
Credit card balances just hit an all-time high. Delinquency rates on auto loans and credit cards are now above 2019 levels — and climbing fast. The personal savings rate collapsed to 3.5% this summer, one of the lowest readings in over a decade.
- Over 60% of Americans now live paycheck to paycheck (up from 55% pre-pandemic)
- Food-at-home prices are still 25% higher than 2020
- Rent increases have outpaced wage growth for 23 straight months
- The “resume tsunami” — people taking second and third jobs — is very real
These aren’t abstract statistics. These are the families choosing between groceries and the electric bill. The ones trading down from name brands to store labels. The ones who used to shop at Target but now default to Walmart — or increasingly, dollar stores.
And here’s what keeps me up at night: most of this pain is still masked by accounting tricks and temporary supports.
The Credit Card Illusion Is About to End
For years, banks kept minimum payments artificially low and credit limits rising. That game is rapidly coming to an end.
Charge-off rates are spiking. Banks are finally tightening standards. And perhaps most importantly, the average credit card APR just crossed 23% — the highest on record.
Think about that for a second. Someone carrying a $7,000 balance — which is now the national average — is paying almost $1,600 a year just in interest. That’s real money that used to go to restaurants, travel, clothing, you name it.
When that spending disappears, someone feels it. Usually a lot of someones.
What the Holiday Numbers Are Really Telling Us
Every December we get bombarded with “record holiday spending” headlines. And yes, total dollars spent will almost certainly hit a new high again this year. But that’s incredibly misleading.
Inflation alone guarantees nominal spending records. The real question is units moved and who is doing the buying.
Early data suggests we’re seeing exactly what I described above: the wealthy splurging on experiences and high-ticket items, while everyone else loads up on necessities and deeply discounted goods. Black Friday traffic was up, but average transaction values were flat to down at many retailers.
In other words, more people showed up… hunting for deals they desperately need.
The Stock Market Doesn’t Care About “Average” Anymore
This is the part that frustrates so many investors. The S&P 500 keeps grinding higher while consumer discretionary stocks — especially those exposed to middle and lower-income shoppers — have been volatile disasters.
There’s a simple reason: the market has fully priced in the K-shape. Investors understand that “the consumer” no longer moves as one unit.
- Companies with heavy exposure to the top 20% of earners → trading at premium multiples
- Companies dependent on the bottom 80% → trading like we’re already in recession
- Companies that cleverly serve both → the real winners right now
I’ve found the most successful investors lately aren’t betting on “consumer strength” or “consumer weakness.” They’re betting on consumer segmentation.
Where the Opportunities (and Landmines) Are Right Now
Let me be very direct about what this means for your portfolio heading into 2025.
Green lights — where I’m seeing real resilience:
- Off-price and dollar store retailers (think TJX, Dollar General, Ross)
- Walmart — increasingly the default grocer for both struggling families and wealthy ones trading down on staples
- Premium brands with fortress balance sheets and loyal high-income customers
- Anything tied to home improvement for the wealthy (still renovating kitchens like crazy)
Yellow/red flags — proceed with extreme caution:
- Middle-market department stores still fighting Amazon on price
- Casual dining chains dependent on the “treat yourself” trade
- Any retailer with significant exposure to discretionary categories for lower-income shoppers (apparel especially)
- Auto lenders and subprime credit providers
The most interesting development? Some of the smartest companies are actively repositioning themselves to capture both ends of the K.
Costco is the perfect example. Wealthy members buy the organic produce and premium meats. Struggling members buy the $1.50 hot dog and bulk toilet paper. Same store, two completely different customers — and both are growing.
What Happens When the Music Finally Stops?
Here’s the scenario that nobody wants to talk about but everyone should be thinking about.
At some point — maybe when the job market actually rolls over, or when credit card delinquencies force a real contraction in available credit — the bottom arm of the K falls sharply. When that happens, even the companies serving the wealthy will feel some pain (fewer nannies and landscapers means less discretionary spending even at the high end).
But critically, the damage will be highly concentrated. The stocks that have already derated for this reality might actually hold up better than people expect. The ones still priced for perpetual growth… well, let’s just say gravity eventually wins.
Perhaps the most interesting aspect — and this is just my personal read — is that we’re probably closer to the end of this bifurcated cycle than the beginning. The excesses have built up for years now. Debt levels can’t rise forever. Something has to give.
The investors who recognize this shift first will be the ones who come out ahead when the next phase begins. Because make no mistake — when the K finally converges again, it won’t be pretty for anyone. But some stocks, some sectors, and some strategies will navigate it far better than others.
The American consumer isn’t dead. But the idea of a single, unified consumer? That died sometime around 2021.
Welcome to the new reality. Your portfolio needs to adapt or it will get left behind.
