Rising asset values are playing a growing role in shaping consumer behavior, with spending now more closely tied to financial market performance than in previous decades. Since consumption accounts for roughly 70% of GDP, shifts in household wealth have significant macroeconomic implications. According to Bernard Yaros, lead U.S. economist at Oxford Economics, each 1% rise in stock market wealth now leads to a 0.05% increase in consumer expenditure. This translates into a marginal propensity to consume of $0.05 per dollar of stock wealth, up from under $0.02 in 2010. Similarly, every dollar gained in housing equity boosts spending by $0.04, an increase from $0.03 over the same period.
Yaros attributes this heightened sensitivity to growing confidence among households as their net worth expands. People feel more secure financially and are thus more willing to spend. Additionally, rising home values and appreciated equities allow individuals to tap into their assets through refinancing or selling investments to fund current consumption. He anticipates this trend will intensify as retirees, who typically hold greater wealth than younger demographics, rely more heavily on accumulated assets after leaving the workforce.
The rapid dissemination of financial news via digital platforms has also accelerated how quickly sentiment shifts in response to market movements, further amplifying the wealth effect. This dynamic helps explain sustained consumer resilience despite persistent inflation pressures linked to past trade policies and ongoing business caution around hiring.
Meanwhile, the equity market’s momentum is increasingly driven by a narrow group of technology firms focused on artificial intelligence, including Nvidia, Microsoft, and Google. Yaros estimates that gains in tech stocks over the past year could add nearly $250 billion to annual consumer spending—representing over 20% of total projected growth in consumption.
JPMorgan analysts echoed this observation, calculating that U.S. households accrued more than $5 trillion in wealth from just 30 AI-related companies in the past 12 months, translating into approximately $180 billion in additional annual spending. While this accounts for less than 1% of total consumption, the impact could grow if AI-driven gains spread to broader sectors or other asset classes like real estate.
Notably, stock ownership is no longer confined to high-income groups. A recent survey by the BlackRock Foundation and Commonwealth found that over half of Americans earning between $30,000 and $79,999 invest in capital markets, with more than 50% of them starting within the last five years.
However, higher-income households still dominate overall spending. Data from Moody’s shows the top 10% of earners were responsible for half of all consumption in the second quarter—a record share. Michael Brown, senior research strategist at Pepperstone, links this disparity to both asset appreciation and income inequality.
He warns that the economy is becoming increasingly dependent on discretionary outlays from affluent individuals whose spending habits are sensitive to fluctuations in risk assets. This interdependence creates pressure on both monetary and fiscal policymakers to maintain supportive conditions for financial markets, as declines in asset values could reverse spending trends.
“We’re seeing a feedback loop emerge: consumer demand is influenced by equity performance, which in turn depends on investor confidence sustained by policy support,” Brown noted. “This reinforces a structural bias toward market stability, even if it risks inflating asset bubbles.”
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It’s getting harder to separate the stock market from the economy
That’s because higher asset prices are spurring consumers to spend more freely than before, and consumption represents about 70% of GDP. In fact, this so-called wealth effect has become more potent in just the last 15 years.
Today, every 1% increase in stock wealth translates to a 0.05% uptick in consumer spending, according to a note last week from Oxford Economics lead U.S. economist Bernard Yaros.
In other words, a $1 increase in stock wealth leads to a $0.05 marginal propensity to consume, up from less than $0.02 in 2010. Meanwhile, every $1 increase in housing wealth leads to a $0.04 bump in consumption, up from $0.03.
“As households see their wealth rise, they turn more sanguine about their personal financial situation and are more inclined to loosen their purse strings,” Yaros wrote. “Increases in wealth will also propel spending by allowing homeowners to extract more equity from their houses or to liquidate appreciated stocks to fund their current consumption.”
He sees the wealth effect sending the marginal propensity to consume even higher in the coming years because retirees will comprise a bigger share of the population.
Given that they already enjoy a bigger net worth than younger generations do, retirees will rely more on their wealth to support consumption after they stop working and earning an income, Yaros explained.
On top of that, the ubiquity of digital media means consumer sentiment reacts even quicker to market news, reinforcing these wealth effects, he added.
This more powerful wealth effect could help explain why consumer spending has stayed resilient. Even as President Donald Trump’s trade war has kept inflation sticky and made businesses more nervous about adding workers in an uncertain landscape, AI is still propelling the stock market to new record high after record high.
At the same time, the stock market has grown more dependent on AI-related stocks, such as chip leader Nvidia along with so-called hyperscalers like Microsoft and Google.
Based on his wealth-to-spending math, Yaros estimated that stock market gains in the last 12 months from the tech sector alone will boost annual consumption by nearly $250 billion, which would account for more than 20% of the cumulative spending increase.
“While the stock market is not the economy, the latter risks greater whiplash from the ups and downs in the
former,” he wrote.
Analysts at JPMorgan also looked at the the link between the AI boom and consumers in a note last month. They estimated U.S. households gained more than $5 trillion wealth in the last year from 30 AI-linked stocks, raising their annualized level of spending by about $180 billion.
That represents just 0.9% of total consumption, but JPMorgan noted that it could go higher if AI spurs gains in a broader array of stocks or in other assets like real estate.
And stocks are not limited to wealthier Americans either. A survey released last month from the BlackRock Foundation and Commonwealth showed that over 54% of Americans earning $30,000-$79,999 a year are retail investors in the capital markets. And more than half of that cohort began investing in the past five years.
To be sure, the wealthiest still spend the most dollars, and the emerging K-shaped economy has magnified their impact. Research from Moody’s found that the top 10% of earners accounted for half of spending in the second quarter, a record high.
Michael Brown, senior research strategist at Pepperstone, attributed that to the wealth effect from stock and real estate gains as well as from income disparities.
“Tying all this together produces two things — an economy increasingly reliant on discretionary spending among higher earners, and higher earners whose discretionary spending is reliant on risk assets remaining buoyant,” he said in a note on Tuesday.
This dynamic means central bankers at the Fed who control monetary policy and lawmakers in Congress who control fiscal policy have a greater incentive to support the stock market, Brown added.
That’s because the wealth effect can work in the reverse direction, meaning falling assets prices will slow spending and the economy.
“What we have, then, is an economy that’s tied increasingly closely to the fortunes of the equity market, and an equity market that’s increasingly tied to overall consumer spending, which coupled together result in stronger ‘put’ structure to backstop risk assets, with fiscal stimulus continuing, and monetary backdrops becoming looser,” he said.