Weekly Buzz: What a K-shaped economy means

The Federal Reserve Bank of Atlanta's GDPNow model, which updates in real time, points to a healthy 3.7% annualised growth for the US in Q4 2025. But Wall Street analysts aren’t quite buying it. They’re expecting a sluggish 2.5%, and that caution isn't unfounded.

What’s going on here?

Retail sales stalled in December, hinting that consumers, who power two-thirds of the US economy, had eased off their credit cards as the year closed. The question here isn't how much Americans are spending, it's how many of them are spending at all.

Stock market gains have been padding out wealthier households' portfolios, giving them the confidence to keep travelling, dining out, and splurging. Most Americans, who rely more on wage growth than investment gains, don't have that same cushion.

That disconnect is fuelling talk of a "K-shaped economy" – where the wealthy and invested see their financial trajectory rise, while everyone else sees theirs fall. The richest 10% of Americans now account for 50% of all consumer spending, the highest share in records going back to 1989 and well above the 36% seen three decades ago.

On the flip side, lower-income households have been juggling steeper borrowing costs. Delinquency rates across mortgages, credit cards, and other household loans rose to 4.8% last quarter, the highest since 2017.

What’s the takeaway for investors?

While the US has its fair share of challenges, it still has plenty going for it. It’s still the world’s largest economy after all, and it saw 130,000 jobs added in January, nearly double forecasts. Unemployment also fell and wages rose faster than expected. For investors, maintaining both US and global exposure means you’re positioned for growth wherever it emerges.

(If you want a portfolio that’s diversified across the US and globally, see General Investing.)

Investor’s Corner: The scale of the AI race

Imagine spending US$1.8 billion a day, every day, for a full year. That’s roughly the plan for four of the biggest US tech firms: Alphabet, Meta, Amazon, and Microsoft. Collectively, the group expects capital expenditures to hit roughly US$630 billion in 2026, or about 60% more than they spent last year.

Most of that money is going where you’d expect: data centers and the long list of equipment needed to power them. That includes specialised chips to train and run advanced AI models, networking hardware, and backup generators.

To put that in perspective, Bloomberg estimates that 21 of the largest non-tech corporate spenders in the US, including automakers, defense contractors, and oil giants, will invest a combined US$180 billion in 2026. Four tech companies alone plan to spend more than three times that amount.

During the early stages of AI euphoria, investors rewarded ever-higher spending. That enthusiasm may be cooling, as investors question whether AI-related revenue growth will be large enough to justify these levels of capital expenditure.

Still, these four companies hold over US$420 billion in cash and generated close to US$200 billion in free cash flow last year. The spending is big, but unlike past investment manias, these companies are profitable, cash-rich, and see real demand for what they're building.

(For a simple and customisable way of investing in Big Tech, check out Flexible Portfolios.)

These articles were written in collaboration with Finimize.

Simply Finance: Capital expenditure

Capital expenditure, often shortened to capex, is the cash a company spends on long-term physical assets like buildings, machinery, and equipment; as opposed to everyday operating costs like salaries or rent.