The U.S. economy has shown some serious grit, bouncing back from the COVID-19 pandemic with a strength that even the most optimistic economists might not have predicted. With a robust labor market and ongoing expansion, the nation has sidestepped recession forecasts, despite those pesky Federal Reserve interest rate hikes. But despite all the positive data, it seems like not everyone is ready to pop the champagne. This is what we call the “vibecession” — aka the disconnect between a booming economy and Americans feeling at the end of their ropes when it comes to their own financial situations.
What’s the Deal with the Vibecession?
Let’s say you’re at a party where half the guests are absolutely popping off, and the rest of the attendees are sitting on their hands having the worst night of their lives. That’s pretty much the current economic vibe. According to Joyce Chang, JPMorgan’s chair of global research, while homeowners and those with financial assets are toasting their good fortune, a significant chunk of the population feels left out. “If you’re a homeowner or if you own financial assets, you’ve done very well, but you’re leaving out huge segments of the population,” Chang noted at CNBC’s Financial Advisor Summit. Essentially, the wealth boost has been lopsided, leaving about one-third of people feeling like they missed the memo.
The Squeeze on Working-Class Wallets
For many working-class Americans, it’s been like swimming the English Channel with weights strapped to their ankles. Higher interest rates and inflation have made it impossible to stay afloat. Savings? They’re gone. Credit cards? Maxed out. Young adults, in particular, are being hit hard. They’re stuck with massive hefty student loans as well as skyrocketing costs. You can actually see the financial strain in rising credit card delinquency rates, which just adds to the sense of doom and gloom. So, while the economic dance floor might be crowded, not everyone is in the mood to dance.
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Perception vs. Reality: A Tale of Two Economies
Courtney Garcia, senior wealth advisor at Payne Capital Management, sees this disconnect firsthand. “Though the data on the economy continues to be really strong, the consumer is not feeling that and it’s really showing,” she said.
Smart Investing Tips in the Age of Vibecession
So, how can you navigate these mixed signals and invest wisely? Garcia’s advice is to keep calm and think long-term, especially for younger folks who have time on their side. “We’re really making sure we’re talking to clients about the importance of looking long term,” she emphasized. Despite the current jitters, there are plenty of opportunities out there. Garcia points to commodities and small-cap stocks as potential winners, especially since they lagged behind their larger counterparts last year.
Diversification is your friend here. Many people have put all their eggs in the large U.S. companies’ basket, which can be risky. “Making sure you are broadly diversified is going to be key,” Garcia advised. This means that it could be time to spread around any profits from large-cap investments.
The Silver Lining
Despite the somber vibes, there’s a silver lining. “Generally speaking, I’m more positive on the fact that the data is showing the economy — and the consumer — is still on good footing,” Garcia said. The resilience of the U.S. economy and smart investing can help bridge the gap between perception and reality.