According to Wolfe Research, the wealth effect has become one of the most influential forces supporting the U.S. economy, even as investors remain heavily focused on the rapid expansion of artificial intelligence infrastructure.
The firm believes rising asset values are helping sustain consumer spending and economic growth, complementing the impact of AI investment and fiscal stimulus measures.
Chris Senyek told clients that real-time economic indicators continue to point to growth of approximately 3%, supported by a combination of AI-related spending, tax incentives from the One Big Beautiful Bill and the financial benefits generated by higher asset prices.
Manufacturing Activity Continues to Improve
Wolfe cited the latest ISM Manufacturing report as further evidence of economic resilience.
The survey showed manufacturing activity expanding for the fifth straight month, while the New Orders index continued to signal an Early Acceleration phase within the firm’s proprietary U.S. Market Cycle Framework.
The data reinforce the view that business activity remains healthy across key sectors of the economy.
Rising Asset Values Are Supporting Spending
A central element of Wolfe’s thesis is that strong financial markets are translating into higher consumer expenditures.
“Investors shouldn’t ignore the implications of the wealth effect on spending,” Senyek said.
With U.S. equity markets trading at record levels, wealthier households have seen significant gains in their investment portfolios, increasing their ability and willingness to spend.
“The top 40% of earners in the U.S. own 94% of equities,” wrote Senyek.
Because ownership of financial assets is heavily concentrated among higher-income consumers, stock market gains can have an outsized effect on spending patterns.
Housing Wealth Strengthens Consumer Balance Sheets
Wolfe also emphasized the contribution of residential real estate to household wealth.
The firm estimates that U.S. homeowners have accumulated roughly $16 trillion in additional housing wealth since the onset of the COVID-19 pandemic.
Higher-income households account for the majority of that increase, owning around 75% of total housing wealth.
As a result, many consumers continue to benefit from stronger balance sheets and greater spending flexibility.
Lower Fuel Prices Could Create Additional Opportunities
Looking ahead, Wolfe Research sees attractive opportunities in discretionary service companies that are positioned to benefit from declining gasoline prices.
The firm believes that lower energy costs, combined with elevated levels of financial and housing wealth, could continue to support consumer demand and help maintain economic momentum.
While AI remains a dominant investment theme, Wolfe argues that the wealth effect is an equally important factor helping drive the U.S. economy forward.
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