2026 Market Update: A Tale of Two Consumers

• The Bloomberg World Equity index has annualized 21% returns over three years, creating significant wealth effects for asset owners while non-asset owners face wages barely keeping pace with inflation
• The University of Michigan Consumer Sentiment Index hit its lowest level ever in May 2026, below levels seen during COVID, the financial crisis, or the high inflation period of the late 1970s/early 80s
• Four tracking metrics (TSA passenger volumes, sit-down restaurant sales, cosmetics, and luxury goods spending) show wealthy consumer spending remains stable, which is critical since the U.S. consumer accounts for about 18% of the global economy

Market Summary: 2026 Consumer Divergence

Key Findings

The U.S. market exhibits a pronounced K-shaped economic recovery, with asset owners thriving while lower-income consumers struggle. The Bloomberg World Equity Index has annualized 21% over the past three years, creating substantial wealth effects for those with significant asset holdings.

Critical Data Points

• Gas prices: $5/gallon, up over 50% year-to-date
• Consumer sentiment: University of Michigan Consumer Sentiment Index hit its lowest level since inception in the late 1970s (May reading)
• Economic significance: U.S. consumer spending represents 18% of global GDP

Market Divergence

Despite markets trading near all-time highs, consumer sentiment has reached historic lows—worse than during COVID-19, the 2008 financial crisis, or the high inflation period of the late 1970s/early 1980s. This unusual divergence stems from survey methodology issues and market composition favoring wealthy participants.

Wealth-Dependent Indicators

Analysis focuses on four metrics tracking high-income spending:

• Services: TSA passenger volumes, sit-down restaurant same-store sales
• Goods: Cosmetics sales, luxury brand performance (composite of seven global luxury companies)

These indicators currently show stable trends, suggesting affluent consumers continue spending despite broader sentiment weakness.

Investment Implications

The report emphasizes monitoring wealthy consumer behavior, as this segment disproportionately impacts market performance and economic growth. Lower-income consumers face headwinds from persistent inflation, elevated interest rates, and lackluster job growth among new entrants. Markets remain supported as long as high-income spending persists, but deterioration in this cohort would signal significant downside risk given weak support from lower-income segments.

Author: Craig Basinger, Chief Market Strategist, Purpose Investments Inc.