The New Shape of the U.S. Economy & Private Equity’s NFL Play

SPEAKER_1 (0:00)

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Hanna Horvath (0:31)

Is the economy K-shaped, C-shaped, or have we officially run out of letters? We'll break down why the answer matters for consumers and for markets.

Dylan Lewis (0:38)

Plus, with the NFL season kicking off this week, we look at some of the shakeups in the owner's box.

Hanna Horvath (0:42)

For Friday, September 11th, it's Brew Markets Daily. I'm Hanna Horvath.

Dylan Lewis (0:45)

And I'm Dylan Lewis. Let's get moving and grooving.

Hanna Horvath (0:55)

It's Friday and we wanted to cover some of the stories that we did not have time to get to this week. And later in the show, we're going to play Overheard on Earnings with John. But first, let's play a little bit of alphabet soup with the economy. Dylan, I want to start with a deceptively simple question.

Is the economy good right now?

Dylan Lewis (1:10)

This seems like it is too big a question to have a simple one correct answer.

Hanna Horvath (1:15)

Yes, and that is kind of the point. And that's the purpose behind this whole story today.

It's funny how you can look at things like GDP growth, low unemployment rate, stock markets near record highs. And you'll look at all these things and think, okay, great, everything looks good. But then you'll look at things like housing unaffordability, consumer sentiment, or how hard it feels to find a new job, and you might get a completely different answer.

And markets add even another layer of complexity onto here. You know, sometimes something like a Strong Dogs report, which is good economic news, sends stocks down because investors immediately start thinking, okay, this is great for the economy, but maybe not so good for rate cuts. And so much of what we talk about on the show isn't really about what's happening right now this very second. It's oftentimes about what today's data tells us what investors might do next. And Dylan, I'm curious how you think about that distinction, you know, the stock market versus the economy.

Dylan Lewis (2:05)

Yeah, as someone who's been following it for a long time, I think one of the purest and truest things about stock market is it is generally forward-leaning. It is more about future expectations than current reality. You could have a company put up great quarter results, but if guidance is weak, that's what people are going to pay attention to. And also great expectations about what markets could become are more important than what those markets are today. I feel like a company like SpaceX is kind of a great example of that.

People do really love to cite the S&P 500 as an example of a measure of strength of the economy. And it is, it's kind of a measure of strength, but it's not something that is a particularly great proxy for how most people feel about the economy or necessarily how most people's wealth is growing in the economy, because such a large percentage of the stock market is owned by such a small percentage of Americans.

Hanna Horvath (2:48)

Yeah, and that gets into kind of the alphabet soup that I want to talk about in a second. But I think all this together kind of help explain why the idea of what defines a good economy can be so slippery. And lately, that disagreement has shown up over two letters, which is K and C.

For the past couple of years, we have heard pretty consistently about the idea of a K-shaped economy, and it's shorthand for these two very different consumer experiences. So if you imagine the letter K, you have one arm, which are generally higher income households. They own stocks and homes and other assets, and they've benefited over the past couple of years post-COVID from rising asset prices, rising savings, and a lot of times, they're spending. They're feeling pretty good about their financial situation. And then you have the lower arm of the K, which is those middle and lower income households that maybe aren't benefiting from rising asset prices. Maybe they don't own a home, and they're getting squeezed by rent and borrowing costs and groceries. And so two very different consumer experiences, two different perceptions of economic reality, even though we're all living in the same place. And for investors, that split does show up in earnings, right? You know, if consumer spending is being propped up by these wealthier households, you see how companies that are offering more premium products, luxury travel, you know, appealing to that subset of consumers, while lower income households become more price sensitive. That explains kind of this dichotomy of how you can have this almost awful consumer sentiment and strong luxury premium demand at the same time. And the idea of an average consumer and these headlines about the average consumer being resilient is partly not accurate because there isn't necessarily an average consumer.