Published September 26, 2025
So far at least, the presumed negative impacts of the Trump Administration’s tariff policies have not materialized. GDP for the third quarter is projected to be above +3%, a healthy economic growth level. While inflation remains higher than hoped for, it has not accelerated to the upside as some predicted. The doom and gloom purveyors keep having to push out their negatives into some future time.
Why is this the case? How can so many market and economic analysts get it wrong? We think the stock market has been a big part of the answer.
First, let’s look at some data Delta Research put out this week noting that the folks in the top 10% of income distribution are now driving ALMOST HALF of all consumer spending. That’s a staggering number. What makes that top 10% so bullish and willing to keep spending at high levels? It’s the “wealth effect” whereby higher asset prices drives a feeling of increasing wealth and a resultant increase in spending.
As Delta Research summarized:
“World prosperity is expanding, especially for the top percentile. The Organization for Economic Co-operation and Development (OECD) raised its 2025 global growth forecast to 3.2% from 2.9% this week. The second-quarter GDP estimate was revised up to 3.8% from 3.3% driven by an upward revision to consumer spending – real final sales to private domestic purchasers were up 2.9% versus 1.9% in the second quarter. Goldman Sachs raised its 12-month S&P 500 target level for the index to 7,200.
Whether it is the wealthiest corporations or the wealthiest households, the rich are getting richer. The remainder is roughly stagnant.
According to Bloomberg, consumers in the top 10% of the income distribution accounted for 49.2% of total spending in the second quarter, reaching the highest level in Federal Reserve data going back to 1989. In contrast, the bottom 80% of the income distribution, or consumers making less than roughly $175,000 a year, have seen their spending merely keep pace with inflation since the pandemic.
The top 10% of households have roughly 70% of all household net worth. The bottom 50% of households have almost no net worth.
The wealthiest and largest technology companies dominate earnings growth and stock price appreciation. AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022.
Looking ahead, the aggregate upward earnings revisions for the S&P 493 (S&P 500 minus the Magnificent 7 stocks) for 2026 is negative. The Magnificent 7 is where we see consensus upward earnings expectations.
The sharp rise in earnings expectations for the Mag 7 companies has clearly been a major stock market driver. That surge has kept money in the stock market despite a plethora of negative headlines that would typically undo any rally attempts.
As we turn into what is typically strongest quarter for the stock market, will the bulls continue to run wild?
Market Update
Stocks continued marching upward in Monday’s session with reports of a tie-up between Nvidia and ChatGPT maker OpenAI providing the latest AI fuel. Nvidia made a substantial investment in semiconductor maker Intel the week prior. Nvidia is using its massive AI chip winnings to support the next generation of AI infrastructure while also giving the Trump Administration the domestic-focused investment it wants. The news sent the Nasdaq to an +0.7% gain. A speech by Fed Chair Powell tossed some cold water on the rally Tuesday. The Fed Chair continued his usual cautious stance while investors appeared to take some profits after Monday’s move. The Nasdaq gave back Monday’s gain with a -1% retreat. Strong earnings from memory chip maker Micron failed to halt the two-day slide in tech shares. Investors pushed the Nasdaq down another -0.3% Wednesday. Micron’s stock had rallied substantially in the weeks before the earnings. News that Oracle is increasing a massive bond/debt sale to finance its AI buildout combined with cautious words on the buildout from a hedge fund manager kept investors defensive Thursday. A 100% tariff threat on pharmaceutical companies hammered the healthcare sector to further add to the negative tone. The broad market indexes slipped -0.5% in their third consecutive decline. Friday brought a bit of a recovery with the S&P 500 rising +0.6%.
Stocks were due for a pullback after a strong three week rally. For this week, at least, the pullback was slim with the S&P 500 (SPY) dipping -0.28%. The Nasdaq 100 (QQQ) slipped -0.45%. Small cap stocks (IWM) were off -0.67% as interest rates have now recovered much of the ground lost earlier in the month. .