Markets are still celebrating the AI boom. The S&P 500 keeps hitting new records, corporate profits are near historic highs, and investor attention remains riveted to everything artificial intelligence. But Man Group's Matt Rowe, Managing Director of Solutions, isn't looking at the scoreboard. He's looking at the fuel gauge — and it's nearly empty.
"The tech rally hides a fragile US consumer," Rowe writes. "If the AI bubble bursts, household spending can't save the economy or the stock market."
That's not rhetorical provocation. It's a structural observation with mounting data behind it.
The Economy Is Two Economies
The United States is textbook consumption-driven. Household spending accounts for two-thirds of GDP. That arithmetic has always given US investors a sense of embedded resilience — when markets wobble, the American consumer has historically absorbed the shock and kept the engine running. Man Group's central argument is that this assumption is now dangerously outdated.
"Many of these headline numbers are held up by a narrow range of wealthy households and about 10 large-cap tech stocks," Rowe notes, "leaving the economy and the stock market overly reliant on a small cohort."
A Minneapolis Federal Reserve paper quantifies the asymmetry: the top 10% of US households account for between 35% and 50% of all consumer spending. Federal Reserve data reinforces the picture from the asset side — the richest 10% hold roughly 90% of US equity holdings, and equities are up more than 25% over the past year. As long as that cohort keeps spending off asset wealth gains, the headline number stays firm. But for the other 90%, the numbers tell a different story entirely.
Walmart as Canary
Rowe's most striking piece of evidence comes from the retailers serving everyday America. Walmart — still the largest physical US retailer — reported that the average customer is now filling their tank with less than ten gallons of fuel at a time, a sign of household budget stress the company said it had not seen since 2022. Walmart also absorbed US$175 million in higher fuel costs in its distribution and fulfillment operations in the first quarter. Costco reported high consumer price sensitivity, with members using its petrol stations for the first time.
These aren't abstractions. These are behavioural data points from the companies servicing 90% of the US income spectrum — and the signal is consistent.
The Data Beneath the Data
Official government figures remain reassuring on the surface. Corporate profits as a share of GDP hit 18.4% in the first quarter, the second highest reading since records began in the 1940s. But the aggregate masks the distribution. The personal savings rate fell to 2.6% in April — down from 4.9% a year earlier and the lowest since 2008 — while disposable personal income also declined. Consumer debt flowing into serious delinquency rose from 2.45% to 2.83% in the first quarter, with student loan debt deteriorating most sharply.
"The 90% of mass market, middle-to-lower income consumers now look pretty broke," Rowe states plainly. "Most of this cohort are already relatively high proportional users of credit, so this is not a new untapped additional resource."
The credit buffer is gone. The savings cushion is nearly gone. And with the Iran conflict keeping energy prices elevated, "inflation is unlikely to go anywhere but up," Rowe writes, with "risks of stagflation or a mild recession increasing by the hour."
The Fed's Impossible Arithmetic
This sets up a particularly difficult moment for incoming Fed Chair Kevin Warsh, who faces his first meeting imminently. Markets are pricing a 60% probability of an October rate hike. Raise rates to fight inflation — driven largely by an external energy shock — and the consumer contraction deepens. Hold, and inflation becomes more entrenched. There is no clean path.
Portfolio Implications: Durable, Defensive, Diversified
Where does this leave investors and their advisors? Man Group's framework is clear, if uncomfortable: "Most portfolios are sitting with far too many chips in the US basket, which leaves them exposed to a very narrow group of affluent consumers." The prescription is active diversification toward global developed markets where valuations may offer better downside cushion.
Rowe notes that the old contagion assumption — when the US sneezes, the world catches a cold — may no longer hold as it once did. De-globalization and more insular policies have forged a new world order in which global countries and companies are actively learning to steer around the American market.
"Sitting on the sideline and hoping this just blows over," Rowe concludes, "will likely result in getting drenched."
Key Takeaways for Advisors and Investors
The K-shaped economy is no longer a theoretical frame — it is a measurable reality with portfolio consequences. AI enthusiasm has obscured a deteriorating consumer foundation that underlies two-thirds of US GDP. Savings are depleted, credit is strained, and the behavioural evidence from major retailers confirms what aggregate statistics conceal. A portfolio heavily concentrated in US large-cap equities is, functionally, a bet on a narrow sliver of wealthy households and a handful of tech names. The Fed has limited room to manoeuvre. Diversification into global developed markets isn't a hedge against pessimism — it's recognition that the structure of the market has quietly changed, and positioning should reflect that before the broader shift forces the issue.
Footnote:
1 "Views from the Floor When the AI Bubble Bursts, Don’t Count on the US Consumer | Man Group." 12 June 2026.
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