DataTrek Co-founder Nicholas Colas said the K-shaped economy is "very much alive and well."
The K-shaped economy refers to a widening gap between higher- and lower-income Americans, with the two groups experiencing different trends in income, spending and wealth.
Colas spoke Thursday on CNBC’s "Closing Bell Overtime," discussing what is driving moves in markets and the economy.
Colas on AI Funding and the K-Shaped Economy
Colas said the relationship between oil prices and bond yields "broke apart in mid-September." He added, "Oil began to fall, yield still went higher." "Today is the tell," he said, citing "all this worry about how much money AI companies can raise," which he said is "taking some of the steam out of real rates."
Responding to a suggestion that falling yields and declining financials point to a weak economy, Colas said, "it’s always a matter of what part of the economy." He added, "The K-shaped economy is very much alive and well."
Colas pointed to companies pulling IPOs: "You’ve got a couple of thousand fewer people in the upper end of the K without an IPO." He said that "could be a factor in driving a little bit of that weakness."
Colas on Tech, the S&P 500 and Homebuilders
Asked whether the day’s moves were a standard check along a longer-term trend in which AI remains the engine of the economy and the market, Colas answered yes and said the day’s moves have to be seen in a long-term context. He said what the market is seeing reflects "40 years of Moore’s Law," making "semiconductors ever more powerful for the same dollar of compute." "We’re now at a point where literally Moore’s Law has taken over the S&P 500 and that’s not going to change," he said.
"The stock market’s never been the economy," Colas said, adding it is "probably less the economy now than ever before." For clients worried about this, he said, "go to equal weight S&P 500 go to RSP because then you’re 16% tech."
Asked about housing after builders bounced Thursday, Colas said the group has had "massive underperformance" since 2025 but is "still a good sector." He noted that "Any kind of relief on mortgages is going to help that group and we definitely like it.”
Bessent Disagrees on K-Shaped Economy
Treasury Secretary Scott Bessent said in an August CNBC interview that the K-shaped economy is over and a "C-economy" is emerging, with lower-income workers regaining ground.
On the equal-weight S&P 500 that Colas pointed to, Fundstrat said in September that the index had broken its uptrend, while semiconductors and the Magnificent 7 were propping up the SPX and Nasdaq 100.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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