Have U.S. consumers gone “K-shaped”? A review of the data

Moody’s estimates spending by the top 10% rose 62% between Q3 2020 and Q3 2025, but Bank of America, the New York Fed, the BLS Consumer Expenditure survey, and a CE–PCE hybrid paint much smaller or mixed gaps. Bank of America card data show a split emerging in mid-2025 with the lowest tercile shrinking, the New York Fed finds nominal spending growth since 2020 of ~29% (low) to ~36% (high), the CE shows the top 10% accounted for 23% of out‑of‑pocket spending in 2024, and the prototype CE–PCE blend reports the top 10% at 25.7% in 2023. Conclusion: available measures diverge and do not coherently support a large, persistent K‑shaped consumption story.

Analysis

Fragmented consumption data creates a classic measurement asymmetry: different channels (card swipes, surveys, macro flows) weight households and categories unevenly, so headline narratives overstate conviction. That means positioning should lean on exposure to spending elasticity and balance-sheet leverage rather than on any single spending series; wealth-financed discretionary demand is mechanically more sensitive to equity and luxury-asset moves than to wage growth.

Second-order sector effects will diverge: premium services and low-frequency high-margin goods can sustain pricing power with thin supply elasticity, while broad-based retail faces inventory and markdown risk if discretionary rotation stalls. Financial intermediaries that earn fees and interest on high-balance, high-turnover card relationships will capture upside in an uneven recovery, but also concentrate credit risk if lower-income households increasingly rely on unsecured credit.

Catalysts that will quickly change the picture are clearer than the signal: a >=10% equity drawdown would transmit to luxury and travel demand within weeks, while tightening in unsecured lending standards or a visible uptick in delinquencies would compress bank earnings over a multi-quarter horizon. The prudent playbook is asymmetric: buy exposure to premium demand financed by balance-sheet-rich customers, hedge consumer-credit sensitivity, and use short-duration option structures to limit drawdowns tied to a rapid liquidity or wealth shock.

Key Decisions for Investors

• Long MAR (Marriott) 6–12 months: buy-stock or a 9–12 month call spread (e.g., buy 1x 12-month ATM call, sell 1x higher strike) to capture premium travel resilience. Risk: sharp wealth shock or travel restrictions; Reward: levered recovery in RevPAR and F&B yields—asymmetric payoff with capped premium via spread.
• Long BAC (Bank of America) 6–12 months: buy-stock with a tactical hedge (purchase 12-month put 10–15% OTM) or use a call spread to limit capital. Rationale: benefits from interchange and higher-yield unsecured balances; Risk: rising consumer delinquencies compress NIMs—hedge caps loss while preserving upside from fee income.
• Long TPR (Tapestry) 3–9 months: buy equity or buy 6–9 month calls to play durable premium goods demand that is less price-elastic. Risk: fashion cycle reversal or inventory cleanup; Reward: outsized margin recovery if premium cohorts keep spending despite broader retail weakness.
• Short XRT (SPDR Retail ETF) 3–6 months: initiate a small position (0.5–1% portfolio) or buy puts to express cautious view on mass-market markdown risk and inventory destocking. Risk: broad retail rebound or promotional success; Reward: capture margin compression and negative EPS revisions across broad retail chains.
• Hedge consumer-credit tail: buy 9–18 month puts on SYF (Synchrony) or a cheap long-dated put spread to protect against rising unsecured losses concentrated in retail-linked card portfolios. This is insurance against the scenario where lower-income households materially increase reliance on credit, driving charge-offs.