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Happy Friday, Crew!

If you’ve felt confused this year, you’re not alone.

One minute the headlines say the consumer is cracking: delinquencies up, savings down, “everyone’s tapped out.” The next minute you walk outside and it looks like the parking lots are full, flights are packed, and people are still spending like it’s fine.

So today, let’s unpack what’s actually going on, and why the “K-shaped economy” is real… but not in the way most people frame it.

That disconnect is the whole story of a K-shaped economy. But here’s the part most people miss: it’s not primarily an “income” split. It’s a “wealth and cushion” split.

Income pays the bills. Wealth absorbs the shocks.

A lot of people hear “K-shaped” and immediately map it to salaries: higher earners are fine, lower earners are struggling. Real life is messier.

What actually separates “doing fine” from “one bad month away from stress” is whether you have a buffer you can lean on. In the US, the biggest buffer for the most people is homeownership.

Not because homeowners are morally superior or better planners, but because home equity is a shock absorber. It’s the closest thing most households have to a balance sheet that can take a hit without forcing a lifestyle reset.

If you bought a home before rates jumped, you likely locked in a monthly payment that feels almost unfair compared to today’s market. That single fact changes everything: what you can spend, how much debt you can tolerate, and how quickly you spiral when something goes wrong.

Now compare that to a high-income renter in a high-cost city. That person can make $150k+ and still feel squeezed if rent kept stepping up, childcare is brutal, insurance is rising, and the car payment is now “principal + higher rates + higher insurance + higher maintenance.” It is a lot of outflow pressure, even with a good paycheck.

That’s why you can see something that sounds counterintuitive: delinquency momentum showing up in higher-income cohorts too. Not because they are “broke,” but because high income does not automatically equal high cushion. If your monthly burn scales up with your income, inflation doesn’t just hit “the poor.” It hits whoever has a mismatch between inflows and outflows, and who doesn’t have enough stored buffer to ride it out.

Why “sentiment is terrible” but spending looks fine

This is also why consumer sentiment can look awful for years while the aggregate spending numbers still hold up.

Aggregates lie when the distribution is wide.

If a wealthier cohort keeps spending (and in many categories spends a lot), it can more than offset weaker demand from the lower end. You can end up with “record holiday spend” headlines at the same time a growing chunk of households is quietly cutting back, trading down, or leaning on credit to make the month work.

So when you hear “the consumer is strong,” ask: which consumer?

The economy isn’t one shopper. It’s a mix of very different balance sheets, all living under the same CPI print.

The credit lens that makes this click

Credit data is useful here because it’s less vibes and more behavior. But even that has nuance. A delinquency print today is partly a snapshot of stress right now, and partly a mirror of what lending looked like a few years ago. Loose underwriting in a boom sets up uglier stats later, even if today’s borrower is “fine” on paper.

That’s why it’s hard to use one scary chart as a universal signal.

You can have:

• credit card delinquencies easing,

• personal loans improving,

• while auto delinquencies keep rising,

• and student loan stress is still working through the system.

Not because the data is “wrong,” but because each product has its own math, its own borrower mix, and its own shock points.

Auto is a perfect example. People don’t willingly default on their car. It’s too tied to work and life. If auto delinquencies are climbing, it’s usually telling you that the monthly budget is under real pressure. And it’s not just the sticker price or the rate. It’s the sneaky third line item that people underestimate until it hits: insurance.

If you want one theme that can quietly change household affordability without showing up in the way people expect, it’s insurance. Car insurance, homeowners insurance, health insurance. The monthly “cost to exist” keeps creeping higher, and it stacks on top of everything else.

What this means for markets and for 2026 positioning

A wealth-driven economy creates a weird dynamic: asset prices stop being a side show and become the engine.

If home equity and stock portfolios are rising, a big cohort feels safer and spends more, even if a different cohort is struggling. That’s why the market can look resilient even when parts of Main Street are stressed. The spending power is concentrated in the balance sheets that are most sensitive to asset values.

So going into 2026, the clean way to think about it isn’t “bull vs bear consumer.” It’s “which side of the K does this business live on?”

High-end discretionary, premium travel, and “experience” spending can keep holding up if wealth remains firm. Value retailers can still win because the pressured cohort is trading down. Both can work at the same time, and that’s why broad takes keep failing.

Same thing in credit. Prime can look okay while near-prime gets choppy. And pockets like auto can stay ugly even if other products stabilize, because the all-in cost of car ownership has become a real monthly burden.

If you’re trying to get signal without drowning in noise, here are the tells that matter most: asset prices (stocks and home values), refinancing conditions (do rates fall enough to create real monthly relief), and insurance costs (do they keep stepping up).

That’s the actual K-shape. Not who earns more, but who has a cushion when life gets more expensive.