A professor at the University of Maryland explained why American investors may be feeling confident even as inflation and gas prices put pressure on consumers.
In February, the Dow Jones Industrial Average crossed the 50,000-point threshold for the first time, and it’s been historically high ever since. At the same time inflation is high, grocery prices are soaring and gasoline prices have risen by more than a dollar per gallon.
David Kass, a clinical professor of finance at the Robert H. Smith School of Business at the University of Maryland, says the stock market is rising in large part due to “projected earnings gains, earnings growth of large companies.”
“Those who are invested in the stock market are basically investing in future growth of corporate earnings,” Kass said.
But there is another side to the economy as well; high gasoline prices are stifling some people’s Memorial Day holiday travel plans, high food prices — particularly beef — are upping the cost of backyard grilling and inflation is rising toward 4%.
“That’s why this has been described as a ‘K-shaped economy’ where one leg is going up and one leg is going down,” Kass said. “For those who really are not invested in the stock market in any form, they’re being hit very hard … by inflation. There’s no question about higher gas prices, higher food prices and they undoubtedly do not feel better off.”
Kass said that 52% of Americans are invested in the stock market — the vast majority of them through their retirement accounts. When people see their 401(k) statements or market numbers, in general, people tend to feel good.
“Psychologically, it’s very pleasing to see the values increasing,” he said.
It’s a different story for Americans who do not have stake in the stock market, or for the working people who have a 401(k) plan for the future but still worry about their day-to-day cash flow.
“It’s really a mixed picture as to which part of the population of does feel better off and which does not,” he said.
A Gallup poll released on Friday found that Americans’ confidence in the economy is at its lowest in nearly four years. Only 20% of Americans polled think that economic conditions in the country are improving and partisan gaps remain wide with a rise in 22 points among Republicans compared to late 2024.
A survey of U.S. consumers by the University of Michigan found sentiment fell to a record low, piercing below a bottom in 2022 when inflation peaked above 9%. Households are feeling worried about how bad inflation is now because of expensive oil created by the war with Iran.
U.S. consumers are forecasting inflation will worsen to 4.8% in the coming 12 months, up from a forecast of 4.7% last month, according to the survey. In the longer run, their forecasts for inflation jumped to 3.9% from 3.5% last month. Such rising expectations are a concern for economists because they can drive behavior that creates a vicious cycle that makes inflation worse.
Sentiment dropped in particular for lower-income consumers who are least able to absorb higher costs for essentials, and it fell for Republicans as well, according to the survey.
The Associated Press contributed to this report.
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