It’s getting harder to separate the stock market from the economy. That means the Fed and Congress have more incentive to help Wall Street

Core Insights - The divide between the stock market and the economy is becoming less distinct as higher asset prices encourage consumer spending, which constitutes about 70% of GDP [1] - The wealth effect has intensified over the past 15 years, with a 1% increase in stock wealth now leading to a 0.05% increase in consumer spending, compared to less than 0.02% in 2010 [2][3] - Retirees, who have a higher net worth than younger generations, are expected to rely more on their wealth for consumption, further amplifying the wealth effect [4] Wealth Effect Dynamics - Households are more likely to spend as their wealth increases, allowing them to extract equity from homes or liquidate appreciated stocks [3] - The digital media landscape accelerates consumer sentiment responses to market news, reinforcing the wealth effect [4] Impact on Consumer Spending - The resilience of consumer spending can be attributed to the powerful wealth effect, even amid economic uncertainties such as trade wars and inflation [5] - Stock market gains from the tech sector are projected to boost annual consumption by nearly $250 billion, accounting for over 20% of cumulative spending increases [6] AI-Related Wealth Gains - Analysts at JPMorgan estimate that U.S. households gained over $5 trillion in wealth from 30 AI-linked stocks in the past year, leading to an increase in annualized spending by about $180 billion [7]