Last week offered another reminder of the growing disconnect between Wall Street and Main Street. While the stock market continues to push higher, many households are facing a much different reality.
The S&P 500 finished its sixth consecutive week of gains and has risen roughly 17% since its March low. Markets continue to be supported by strong performance in a relatively small number of large technology and communications companies, many of which remain closely tied to the ongoing artificial intelligence investment theme.
At the same time, signs of stress among consumers are becoming more apparent.
Consumer sentiment recently fell to a record low, according to the University of Michigan survey, and several consumer-focused companies, including Kraft Heinz, McDonald’s, and Whirlpool, highlighted growing pressure on households from higher energy prices and broader inflation concerns.
The stock market remains strong, but many consumers are feeling increased financial pressure.
One of the key dynamics driving this divergence is the narrow leadership within the market. Since early April, the largest companies in the S&P 500 have significantly outperformed the average stock. While the traditional cap-weighted S&P 500 has posted strong gains, the equal-weighted version of the index, which better reflects the average company, has lagged behind.
This suggests that much of the market’s recent strength has been concentrated in a smaller group of large companies, particularly within technology and communications.
Strong corporate earnings have certainly helped support these companies, but investors also continue to focus on the long-term growth potential surrounding artificial intelligence. That theme has remained resilient even as geopolitical uncertainty surrounding the Middle East conflict continues.
On the economic front, recent employment data showed that job growth remained solid in April. In fact, hiring has been stronger over the past two months than at any point since 2024.
However, the underlying details of the report were more mixed.
Real wages are beginning to come under pressure as inflation remains elevated.
While employment levels remain healthy, wage growth is increasingly struggling to keep pace with inflation. Real wages, which measure earnings after accounting for inflation, are approaching negative territory. In practical terms, that means paychecks are no longer stretching as far as they once did.
This is particularly important in the current environment, where higher energy costs continue to influence broader inflation pressures. The duration of the conflict in the Middle East remains a key factor because of its impact on oil and gasoline prices, which directly affect household budgets.
Looking ahead, investors will be closely watching several important developments this week. New inflation reports, including both CPI and PPI data, will provide additional insight into the direction of prices and potential implications for interest rates.
In addition, President Trump’s upcoming visit to Beijing and meeting with Xi Jinping could have broader implications for trade relationships, artificial intelligence policy discussions, and geopolitical developments tied to the Middle East conflict.
For now, markets continue to balance strong corporate performance and technology-driven optimism against growing pressure on consumers and persistent inflation concerns. As always, maintaining a disciplined and diversified approach remains important during periods of uncertainty.
Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
EP Wealth Advisors offers a comprehensive range of services to help you invest with greater insight, as well as develop a holistic wealth management strategy. To discuss your finances and investment goals, we invite you to contact one of our advisors.
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Video Transcript:
Adam Phillips:
Well, last week highlighted something we've been talking about for a while now, and that's the growing disconnect between Wall Street and Main Street. So on the one hand, you have the S&P five hundred continues to move higher into record territory. It actually just finished its sixth consecutive weekly gain.
And since the low on March thirtieth, the S&P five hundred is up seventeen percent. Now on the other hand, if you look at Main Street, we're seeing a little bit of a different story play out. So here we're seeing a, a consumer which is really starting to feel the pressure. We saw consumer sentiment, uh, from the Michigan survey that we get, uh, every month.
We... This number came out last Friday. We saw consumer sentiment Hit a record low last week for the previous month. And we also heard from a number of consumer-oriented companies such as Kraft Heinz, McDonald's, Whirlpool, and they talked about the stress that the, the, that the average household is under and how they're really starting to feel the pain here from higher energy prices.
So what, what is driving the stock market then a- amid the weakness on Main Street? Really, the big story here, as it's been for so long, is about tech. We are seeing s- really narrow leadership here, especially since this rally really began in early April. So on a year-to-date basis, the S&P 500, which is a cap-weighted index, and the equal-weighted index, which is really just the average, uh, stock in the S&P 500, they're about equal.
They're about 7 to 8% or, uh, on, on a year-to-date basis. But if you look at performance since the beginning of April, the cap-weighted index is up about 13%. The equal-weight index, so again, the average stock, is up just about 6%. That really highlights that a, a small number of companies, specifically in technology and communications, are really leading the charge here.
Why is that? Part of it is due to really strong earnings, but part of it is also due to the fact that these companies, uh, can, can continue to do their things as artificial intelligence theme is going to continue to play out while we're waiting for some kind of resolution, and durable resolution, to the war in the Middle East.
So shifting back to Main Street, what are we watching? Last week, we got the, the jobs number, uh, for the month of April, and we actually saw that job growth was very strong. It was the strongest, uh, that it's been in a two-month period since, uh, since, uh, 2024. But if we look beneath the surface, as we always try to do, one of the things that we took away was the fact that real wages are actually falling and could actually turn negative here in the next couple of months.
Why does that matter? I think it's really important that individuals are getting a paycheck. That's, that's the priority number one, but how far are those paychecks going? That's the other thing that we really need to be mindful of. And the latest data suggested that real wages, meaning wages after accounting for inflation, are heading towards negative territory.
That means they are not keeping pace with inflation, and we know when so much of inflation is being driven by higher prices at the pump and broader energy prices, that is why the duration of the war in the Middle East is so critical So this is something for us to keep in mind going forward. It's why these, these companies last week that I mentioned highlighted the, the weakness, uh, and potential risks among the consumer base.
So something for us to keep an eye on here. As we turn our attention to this week, we're looking at a, a, a few things. Number one is, uh, again, staying on the inflation topic. We get the latest inflation report, CPI, tomorrow, which is Wednesday. We also get PPI, the Producer Price Index, on Wednesday. And then I think, think the, the big event for the week is President Trump's visiting Beijing.
He's meeting with, uh, Xi Jinping. And so this is a, this is a visit that really has big potential implications for the ongoing war in the Middle East, for determining what the rules of the road are going to be for artificial intelligence and this theme going forward, and also trade relationships. So that is really going to be something that the market is focusing on here in the days to come.
I'll leave it there for right now, but if you have any questions, as always, don't hesitate to reach out to your advisor. I'll look forward to seeing you next week.