RJ Hamster
The Market Now Runs on Two Engines — and…
 Eric FryEditor, Smart MoneyDAILY ISSUEThe Market Now Runs on Two Engines — and Only One Is Built to LastVIEW IN BROWSERHello, Reader.Travelers, prepare yourselves…The busiest travel days of the year loom ahead of us.Road travel annually peaks on the Wednesday before Thanksgiving, while air travel increases significantly the Sunday after. Recent years have seen record-breaking passenger numbers on this particular weekend day.If you are taking the skies in homeward-bound travel next week, I want you to do something: Count how many weary travelers swarm to Starbucks for “airport-priced” $9 lattes. Does the number ever decrease?Or check out the queue for the first-class Admirals Lounge. Does it snake out the door?When you walk through any airport this holiday season, you’ll see plenty of signs of affluence that don’t seem to align with the “struggling consumer” narrative.But step into a Dollar General, or any discount grocery in a middle-class zip code, and the consumer struggles become more visible. Carts brim with house brand products, store specials, and “buy one, get one” bargains.This is the defining feature of late-2025 America: an economy with two heartbeats.One is pulsing with stock-market wealth and travel points, the other murmuring under credit strain and job anxiety.The U.S. economy is growing top-heavy, as wealthy households shoulder more of the load. That imbalance might drop a banana peel in the stock market’s path.No reason to panic just yet, but ample reason to prepare.So, in today’s Smart Money, let’s take a closer look at this economic split personality… and the new challenges and considerations it presents for investors.Recommended LinkLittle-known AI Stock Disrupting This $1.9T IndustryLuke Lango, who was once voted America’s Top Stock Picker, just released his #1 AI investment right now… he’s even giving this recommendation away for free. This AI company is positioned to take over a $1.9 trillion industry that has yet to be disrupted. The incredible thing is… not too many people are paying attention to this company right now (you’ll see why here)… And that’s why Luke says this stock — trading around $8 right now — could be the next big 1,000% AI winner. Click here to get the name and ticker symbol right now.The Tale of Two WalletsThe latest economic data bring this “tale of two wallets” into high relief.The Boston Federal Reserve finds that America’s wealthiest 10% now account for about half of all consumer spending – the highest on record. That means the economy increasingly depends on the shopping habits of a small, asset-rich cohort.Interestingly, the spending mood of the wealthy springs directly from the “mood” of the stock market. In an October 2025 report from the Bank of America Institute, titled Consumer Checkpoint: The Tale of Two Wallets, the institute showed that discretionary card-spending growth for the wealthiest U.S. households correlates strongly with year-over-year gains in the S&P 500 (three-month moving average).Rising stock prices are just one example of the “fun” kind of inflation that delights affluent households. On the other hand, middle- and lower-income households rarely enjoy the fun kind of inflation, only the un-fun kind.For them, inflation arrives as a relentless series of small hits: higher rent, pricier groceries, climbing energy bills, and interest costs that eat into every paycheck. There is little offset from asset gains, and everyday spending feels like a constant squeeze.According to official figures, nationwide food costs are about 35% higher than they were four years ago, which means a shopping cart full of groceries that cost about $130 in 2021 now costs about $200.That hurts, especially if food, rent, and car payments consume nearly all of the household budget.In the face of these price pressures, the affluent can afford to shrug. The rest “trade down” where they can or swipe credit cards.Growing job insecurity is adding to these stressors. Low-skill jobs are facing the strongest headwinds, but white-collar jobs are not escaping the purge. United Parcel Service Inc. (UPS), for example, has slashed 48,000 jobs so far this year, 14,000 of which were management-level positions.What makes this round of job losses feel different, and somewhat ominous, is the sense that many of these jobs aren’t “coming back later.” They’re stepping into an incinerator.Here’s what I mean…AI Gains Versus Pink-Slip PainsAmazon.com Inc. (AMZN) openly says it has already replaced 14,000 human roles with robots, and IBM Corp. (IBM) has paused or cut back-office hiring because many tasks “can be replaced by AI.”The announcements from Amazon and IBM are but two small pieces of a frightening mosaic. The World Economic Forum sees 14 million net jobs disappearing by 2027 as AI and automation infiltrate the workplace, while Goldman Sachs predicts the tally of at-risk jobs globally could soar to 300 million by the end of the decade.That doesn’t mean a jobless future, but it does mean a permanent regrading of who works where, with fewer entry-level and mid-skill slots in the corporate middle.The AI investment boom is another force that’s powering the growing divide between rich and poor. As data centers spring up like dandelions across the country, tech companies will spend trillions, literally, to construct, equip, network, and power these AI “brains.”McKinsey & Co. estimates that data center investment will total a massive $6.7 trillion during the next five years – of which $5.2 trillion will be for AI-specific infrastructure. Those trillions will come from the same cash-rich corporations that are busy shedding employees and replacing some of them with robots or other AI systems.To be sure, these massive investments will generate a lot of economic stimulus, but it will accrue narrowly to capital owners, not to bartenders and baristas.The GDP may look OK, but the paycheck distribution doesn’t.So, what does all of this mean?How to Allocate Your Investments WiselyThe “Two Americas” may share the same checkout line and the same job market, but they don’t share the same footing.As I mentioned, this economic split presents new challenges and considerations for investors.No matter how much money the wealthy may spend, they cannot singlehandedly sustain the entire economy indefinitely, nor even the specific industries that cater to them – like travel and tourism, high-end apparel, and luxury goods.If most Americans are tightening their belts, the vast majority of industries could struggle to make the marginal sales that would power earnings growth. Simply running in place would feel like a victory.The long-term growth projections that support today’s trillion-dollar data center investments might ratchet lower, as theory collides with practice.In that event, the universe of richly valued tech stocks – including trillion-dollar titans like Amazon and Tesla Inc. (TSLA) – might hit a downdraft.These risks do not demand panic-selling of tech stocks, or a full-scale retreat into cash, but they do demand a fresh and candid look at our portfolio allocations.The cautious investor might want to lighten up on the companies with heavy exposure to stretched households. That group would include industries like mass-market restaurants, discretionary retail, subprime credit, and auto finance.Trimming positions in high-flying AI stocks might also be a prudent course of action. Because many of these stocks are “priced for perfection,” even small doses of bad news can cause outsized selloffs.I’m not preaching doom and gloom, just suggesting a partial shift away from the sectors that seem most vulnerable to disappointment.On the flipside, I suggest a partial shift toward the sectors and companies that possess defensive qualities or underappreciated growth potential… even if the consumer fails to show up.I reveal three such recommendations in this special presentation.These are under-the-radar, early opportunities that could multiply your money in the coming months thanks to their ability to adapt.Click here to learn their names, free of charge.Regards,  Eric FryEditor, Smart Money |
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