Barron's Streetwise Small Caps, Chip Wars, and the K-Shaped Economy
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Dec 5, 2025 Mike Reed, Senior U.S. economist at Royal Bank of Canada, delves into the K-shaped economy, illustrating how AI and tech giants like NVIDIA reshape wealth distribution. He discusses rising credit and auto delinquencies impacting middle-income households, exacerbated by significant spending from the top 10%. With a focus on healthcare and services as resilient sectors, Reed warns that shifts in baby boomer retirement could further strain labor markets. Investors are encouraged to consider the segmented consumer landscape for strategic decisions.
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Income Split Becoming More Pronounced
- The U.S. economy shows a growing split between higher- and lower-income cohorts.
- Mike Reed calls this divergence moving from a lowercase k to an uppercase K.
Metaphors For Job Turnover
- Jack Hough invents metaphors like 'pickleball hours at the town basketball court' to explain retiree turnover blocking younger workers.
- He keeps refining his restroom-at-a-Rolling-Stones-concert and other whimsical images to make the point memorable.
Small Caps Could Stage A Comeback
- Small-cap earnings are forecast to accelerate from 6% to 17%, potentially reversing long-term underperformance.
- Historical episodes show small caps outperform large caps most of the time when earnings jump similarly.