Strength From the Top
The weak jobs numbers put a shadow on what could be an economy still on decent footing. The biggest growth is coming from the market’s leaders and the wealthiest households — and that concentration, while worth watching, may be more of a strength than a weakness right now. With strong corporate earnings, healthy balance sheets, and high-end consumers still spending, the foundation for further gains is intact.
Corporate results are in the books as we wind down Q2 earnings season. Corporate profits are growing solidly, led by Communication Services, Technology, and Health Care. These sectors have pricing power, innovation pipelines, and, in Tech’s case, a multi-year AI monetization runway.
Yes, valuations are elevated but not uncharted. Unlike the 2000 peak, today’s leaders have durable earnings and balance sheet strength to back the multiples.
In spite of the elevated valuations corporate boards are pursuing record buybacks. July buybacks — $166B worth — signal corporate confidence. Companies are returning capital aggressively, and that’s a shareholder-friendly tailwind in a market where demand for shares already outstrips supply.
This record setting buyback spree is on top of all the massive capital expenditures companies are making in AI and cloud computing.
Those investments (in AI and the Cloud) are beginning to pay off. AWS, Microsoft, and Google are narrowing the gap between massive infrastructure spending and revenue growth. This is the kind of capital deployment that can sustain earnings leadership for years.
Overlay the tremendous corporate earnings and investment capabilities with the consumer and you start to see some sustained growth.
The top 20% of households now account for almost 40% of total consumer spending — and they’re not slowing down. Since 2019, their spending has climbed roughly 40%, compared to the middle and lower brackets that are tracking inflation.
The US economy now depends on the rich. Far from being a vulnerability, this concentrated spending is a stabilizer. Affluent households tend to have more secure jobs, more assets, and less debt pressure. Their continued demand supports everything from luxury goods to premium travel, which in turn flows back into corporate earnings.
It’s not just high earners — household debt across all income levels, while elevated in absolute terms, it remains well below historical peaks. This suggests there is still considerable borrowing capacity should the need arise.
Homeowner equity is at an all-time high — $34.5T. With locked-in low mortgage rates and appreciating property values, housing wealth is a key pillar under consumer confidence.
Taken together, these factors create a market foundation that is more resilient than it may appear at first glance. The interplay between robust corporate investment and steady, concentrated consumer spending provides a feedback loop that continually reinforces growth. As these pillars hold firm, the market’s trajectory becomes clearer.
We’re now 2.4 years and more than 78% into the current bull market. Historically, bull markets have lasted over five years on average. Given ongoing earnings momentum, elevated equity valuations, and robust spending at the top end, the outlook suggests there’s still plenty of runway ahead.
Yes, the market’s strength is concentrated — but it’s concentrated in sectors and households with the financial firepower to keep driving growth. Corporate leaders are executing, balance sheets are robust, and the consumers who spend the most are still in expansion mode. If history is a guide, this is the type of setup where the bull can keep running assuming we get rate cuts that can lift the bottom half of the US workforce. Strength from the top is great but we will need more earners to drive this economy in the long run.
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Tim Phillips, CEO, Phillips & Company
Sources:
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