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Are markets defying the economy?

  Key takeaways:

  • Technology and product-led sectors dominate: The clout of tech and product-driven companies in the S&P 500 is a major force behind strong market profits, even when consumer spending is subdued.
  • Global reach boosts earnings: International sales and currency movements can help large US companies grow profits, allowing markets to outperform the domestic economy.
  • Profits outpace paychecks: Corporate earnings and margins are rising faster than wage growth, powering the stock market while Main Street feels a squeeze.

The tech party hit a wall last week.

Bears seized the spotlight as scepticism grew over AI’s trillion-dollar spending spree, while the US government shutdown stretched to a record length. On Main Street, the chill persisted: wage growth cooled and consumer confidence slipped.

Yet, despite the doubts, Corporate America keeps powering ahead—earnings and margins are rising, even in a tough macro environment.

This widening disconnect—markets rallying on corporate profits while everyday sentiment feels more tenuous—sets the stage for our deeper dive into why “markets are not the economy”, and what that means for investors.

The great divide: Measuring the disconnect

The gap between Wall Street and Main Street has rarely been more striking. Since 2000, S&P 500 earnings per share have soared over 350%, and the index’s total return is up roughly 630%. In contrast, nominal GDP has increased by about 200%, and the “average” US company—based on a broader index that represents 90% of US public market value1—has risen only 47%.

Why the disconnect? Stocks move with company profits, while the economy is driven by paychecks and consumer spending. That’s what truly sets the market apart—and explains why the S&P 500 can climb even as Main Street feels a squeeze.

The AI buildout is a prime example: companies are pouring money into data centres and equipment, not ramping up hiring. This kind of investment boosts profits far more than paychecks.

We explore three core drivers of this disconnect:

1. Services versus goods engines

The US economy runs on services—about two-thirds of household spending goes to things like rent, healthcare, dining, and travel. That’s how everyday people feel the economy.

By contrast, the S&P 500 is dominated by goods and platform businesses. The technology sector alone makes up over a third of the index, while other goods-linked sectors—such as branded products, industrial equipment, energy, and materials—account for about 25% of market cap.

This heavier mix of technology and goods helps explain why stocks can rally even when Main Street feels softer: large, listed firms tend to enjoy high margins and global scale.

2. Domestic focus versus global reach

The US is a major global player, but its economy is primarily driven by domestic activity—exports make up only about 11% of GDP. This means America’s overall economic health is less dependent on international trade than many other smaller nations.

The S&P 500, however, reflects a much broader footprint. Nearly 30% of its revenue comes from overseas, and for tech companies, it’s closer to 55%. This global reach means foreign demand and currency swings can significantly impact profits and the index, even when US economic data feels softer. For example, a weaker dollar tends to boost translated earnings; recent estimates suggest that a 10% drop in the dollar can provide about a 2% tailwind to S&P 500 earnings per stock.

In short, the market’s strength is partly powered by international exposure—not just what’s happening at home.

3. Paychecks versus profits

The US economy is powered by wages and consumer spending—when paychecks grow and hours worked rise, the economy usually picks up speed. Markets, however, play by different rules. Stock prices depend on profits per stock: earnings, margins, and the impact of buybacks that spread profits over fewer stocks. And that’s not to mention the impact of dividends.

The latest numbers make the split clear. Wages are cooling. Big raises from job-hopping are harder to find, and fewer people are quitting for new opportunities. That means less extra pay for most households.

On the other hand, corporate profits are on a roll. Q3 is set to deliver over 13% earnings growth year-on-year—the fourth straight quarter of double-digit gains. Alongside that strength, profit margins have also bounced back, with companies keeping more of their revenues as profit after expenses. For goods-producing firms, margins are now about 60% higher than five years ago.2 On top of that, many are also rewarding shareholders with increased dividends and buybacks.

All told, profit resilience is powering the stock market, even as wage growth for regular workers cools.

What it means for you

There’s been plenty of talk about the gap between the economy and the market—uncertainty on Main Street, while indexes hover near record highs. It may feel uncomfortable, but we believe it’s logical. In our view, markets are profit-driven: they respond to earnings, margins, and per-stock growth—not the daily ups and downs of wages or consumer sentiment. In this cycle, we think all three of our drivers point in the same direction.

We also believe we’re living through a structural shift—more political risk, louder populism, and choppier headlines. In our view, markets can look past these challenges when profits hold up, as they have this year. That’s why we think the gap can persist: markets reward scalable businesses that keep growing earnings, even when growth slows in the broader economy.

Reach out to your J.P. Morgan team to discuss our views in more detail.

1 The “average” US public company is measured by the Value Line Geometric Index—an equally-weighted benchmark covering around 90% of all US traded stocks across major exchanges. It is based on approximately 1,700 companies covered in the Value Line Investment Survey.

2 Margin data for goods-producing firms is sourced from the National Income and Product Accounts (NIPA), which track the financial performance of US businesses as part of the country’s official economic statistics.

KEY RISKS

All market and economic data as of October 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

  • Past performance is not indicative of future results. You may not invest directly in an index.
  • The prices and rates of return are indicative, as they may vary over time based on market conditions.
  • Additional risk considerations exist for all strategies.
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Important Information

  • The S&P 500 Index is a leading benchmark for large-cap US equities, covering 500 top companies and about 80% of total market capitalisation. It’s the backbone for a wide range of investment products.

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Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income,  alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

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Stocks keep climbing, but Main Street isn’t feeling the same lift. We break down three reasons behind the divide.
Published Nov 10, 2025

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