JPMorgan warns K-shaped US economy could spark macro shock

JPMorgan Asset Management has warned that the K-shaped US economy, characterized by a divergence between struggling lower-earning households and prosperous higher-earning Americans, poses a risk of sparking a broader economic shock. The bank's asset management arm highlighted that this economic split is unlikely to even out soon and could catalyze macro and market volatility. A key driver identified is the expectation that capital gains will grow faster than labor income in the coming years, a dynamic that favors asset owners. The report noted that US stock investors, primarily in the top income quintile, hold a significant portion of the nation's stock wealth, with households in the highest income quintile possessing $56.3 trillion in stock and mutual fund wealth, representing 87% of the total. JPMorgan anticipates annual growth of around 7.5% for US large-cap stocks. In contrast, productivity gains from AI are estimated to be more subdued, with JPMorgan projecting an annual boost of about 1.2% to US total factor productivity growth in its base case. The distribution of these AI-driven productivity gains among lower- and middle-income Americans remains uncertain. The bank outlined several risk scenarios, including increased worker demands for resources, potential disincentives to investment from redistribution efforts, and widespread capital misallocation if AI fails to significantly boost productivity. JPMorgan described the K-shaped economy as a 'metastable state' that is surprisingly durable but sensitive to stress, with a miscalculation of the balance between capital and labor rewards being the greatest risk to the economic outlook.