- The U.S. stock market boomed in the first half of 2026, building on recent years of strength.
- Meanwhile, economic growth has been more muted.
- Artificial intelligence is the main reason for the divergence, economists said.
Traders work on the floor of the New York Stock Exchange during morning trading on July 08, 2026 in New York City.
Michael M. Santiago | Getty Images
Stocks were off to a blistering pace in the first half of the year. Meanwhile, the U.S. economy’s trajectory is more tepid, somewhat divorced from that of stocks, economists said
That disconnect may be confusing to consumers and investors who assume the stock market and economy mirror one another, moving in lockstep
“I think there’s this widespread perception the two should be in sync,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank
“But, from a purely analytical perspective, they’re two very different phenomena,” Seydl said. “We’re talking about apples and oranges in many ways.”
Stock market and economy diverge
The S&P 500 U.S. stock index rose nearly 10% in the first half of 2026. The Dow Jones Industrial Average, another stock index, climbed almost 9% over the same period — its best first-half performance since 2021
Those gains follow a string of blockbuster years for U.S. stocks: The S&P 500 rallied 24% in 2023, 23% in 2024 and 16% in 2025 — the second best three-year win streak since 2000
President Donald Trumpcited the stock market’s strength as a contributor to his soaring wealth after returning to office for a second term, following the release of a mandatory financial disclosure form last week
Meanwhile, “real” U.S. gross domestic product — a measure of economic output, after inflation — has decelerated from about 3.3% in 2023 to roughly 1.9% so far in 2026, Seydl said
To be sure, the state of the U.S. economy isn’t necessarily poor. The pace of growth has been “steady,” Seydl said
Mark Zandi, chief economist at Moody’s, characterized GDP growth around 2% as “soft,” though. It’s roughly flat from last year, he said
“We’re growing. We’re not in recession,” Zandi said. “But we’re not going anywhere quickly.”
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Federal Reserve officials in June estimated the economy would grow at a 2.2% pace in 2026. Consensus among economists is largely concentrated around a 2% growth forecast for the year, Zandi said
Meanwhile, the labor market is showing weakness, Zandi said. Labor force participation is near its lowest level in about 50 years outside of the Covid-19 pandemic. Employers are hiring at their slowest pace in more than 10 years, excluding the pandemic. Long-term unemployment has risen steadily
Additionally, consumer sentiment tumbled to a record low in May amid fears of higher inflation, according to the University of Michigan’s Surveys of Consumers. Sentiment rebounded somewhat in June, though remains “unfavorable,” it said
The stock market and economy generally “travel together” but sometimes “de
“And this is one of those times,” he said
Why the divergence?
Artificial intelligence seems to be the main reason for the divergence, economists said
The stocks of AI companies have gone “skyward” and buoyed the broader stock market, Zandi said
Technology accounts for about 35% of the stock market, and roughly 50% when considering an expanded technology group that also includes Alphabet, Amazon, Meta and Tesla — which are classified as consumer companies but trade like Big Tech, Seydl said
Stocks generally trade based on future expectations of company performance — and, in the current environment, investors are incredibly bullish on the earning potential of technology companies, particularly those in the AI realm
“The rise in earnings has been concentrated in the major ‘big-tech’ firms, especially the semiconductor companies and hyperscalers” that underpin AI infrastructure, Capital Economics said in a July 1 research note
Hyperscalers like Microsoft, Amazon and Oracle provide cloud computing infrastructure, while semiconductor companies like Intel, TSMC and Samsung manufacture AI chips, it said
Those two sets of companies account for almost two-thirds of the growth in S&P 500 earnings since the end of 2022, shortly after OpenAI released its free version of ChatGPT to the public, it said
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Meanwhile, technology only accounts for about 10% to 15% of the U.S. economy, Seydl said
The U.S. economy is instead powered by consumer spending, which makes up about 70% of GDP, Seydl said
While consumer spending remains strong — which is good for the economy — it’s increasingly propped up by high-earning households — a dynamic that threatens to sink the economy if things go sideways, economists said
Households in the top 20% — those with incomes of about $200,000 or more — account for nearly 60% of personal outlays, up from about half in the early 1990s, according to a Moody’s analysis published in June and authored by Zandi
We’re talking about apples and oranges in many ways.
Joe Seydl
senior markets economist at J.P. Morgan Private Bank
Spending among the top 20% grew by about 4% after inflation in Q1 2026, while that of the bottom 80% was unchanged, he wrote. This so-called K-shaped dynamic has persisted since the pandemic, he wrote
Wealthy households hold the vast majority of stocks — and tend to spend more liberally when the market is booming, economists said. This is due to the “wealth effect”: They feel richer and spend more as a result
If investors were to sour on the AI investment thesis and the stock market were to suffer a prolonged drawdown, it could be bad news for the economy if the wealthy pull back on spending, economists said
There are also pressures beyond AI, such as the prospect of war resuming between the U.S. and Iran. Inflation also remains well above the Fed’s target, pressuring household budgets
“If AI stocks hit a skid, the economy would be in big trouble because of how soft it is,” Zandi said. “It’s a very fragile, tenuous place to be.”
