June 24, 2026
Within the past month, I witnessed one of the odder occurrences I’ve seen in financial markets over the course of my career. To be fair, the markets aren’t heavily populated with oddities. They tend to function in an orderly fashion. If interest rates go down, stocks usually go up. If inflation rises, Treasury yields tend to rise. These time-tested patterns rarely deviate from the norm. However, one such deviation caught my eye a few weeks ago. For the uninitiated, Stranger Things is a blockbuster Netflix series in which the ordinary and the extraordinary collide in ways that defy easy explanation — which, as it turns out, describes the current investment environment rather well.
The exhibit below plots the S&P 500 with the University of Michigan’s Consumer Sentiment Index, which polls approximately 600 individuals monthly about consumer finances and spending plans. As shown, there has been a predictable relationship between the two data sets for the bulk of the past 20 years. When consumers feel good about their finances and the state of the world, stocks tend to rise as healthy spending aids corporate profits. When their mood sours, spending contracts and stocks can fall.
The Pandemic changed everything. Since 2020, equities have generally marched higher while consumers’ spirits have dimmed. Over the past 18 months, the gap widened sharply with the S&P 500 reaching all-time highs while Michigan’s Consumer Sentiment Index cratered to new lows…so strange.
In 2024, market strategist Kyla Scanlon famously dubbed this phenomenon – a growing economy and rising stock market coupled with falling consumer sentiment – a “Vibecession.” The recent re-acceleration in inflation, coupled with an unpopular war and a frozen housing market, has caused the country to descend further, to, dare I say, a Vibepression.
The Upside Down
Mr. Market, on the other hand, has not been bothered by the worries of the common man. That’s likely because the common man has had very little to do with its success over the past year. Goldman Sachs recently estimated that one-third of the year-to-date growth in S&P 500 earnings is being driven by only two stocks (Nvidia and Micron Technology)! Hardware shortages related to the artificial intelligence (AI) spending spree have caused many stocks to surge higher. As of this writing, Sandisk is up 820% year-to-date, while Intel and Western Digital boast 2026 gains of 260% and 333%, respectively.
The AI build-out has created a virtuous cycle for many companies. A tech behemoth announces tens of billions of dollars in data center investment, and the stock jumps higher. The companies that supply what data centers need – chips, power, cooling, and security – see their equity prices rise. Investors clamor to own as many of these AI beneficiaries as possible, leading to further price gains. Tech behemoths then issue debt and equity to finance even more capital spending…and the beat goes on.
The Lights are Flickering
In the Netflix show, flickering lights are the early warning that something is amiss, much like today’s frenzied capital raising activities by big technology companies. Eventually, water seeks its own level, and I sense the same will be true of this AI investment cycle. You see, last year, many of these AI capital expenditures were financed by the hefty cash flows of the Amazons, Googles and Metas of the world. This year, much of this cash flow has already been earmarked for AI investment, so the behemoths must search elsewhere. And why not, given the seemingly insatiable demand by investors to own anything related to this seismic shift in technology? Companies have been happy to sell investors boatloads of debt and equity, and that catches my eye as a bit…strange. Morgan Stanley projects AI-related global debt issuance will exceed $570 billion by the end of the year. Nvidia just issued $25 billion in debt – its first bond offering since 2021. Meta, Google, Oracle and Amazon have all raised similar amounts over the past few months.
Demogorgon Day
If you’re a company in need of cash, why limit yourself to the bond market? Technology-related equity issuance has skyrocketed as well. Goldman Sachs estimates that gross initial public offering (IPO) proceeds could top $225 billion this year – almost doubling the previous record of $115 billion set in 2021! When one includes secondary equity issuance, like that of Google’s recent $85 billion offering, total equity issuance could surpass $675 billion this year. Of course, we’d be remiss not to mention SpaceX’s $75 billion IPO this month. Even by today’s standards, I was quite impressed with the market’s enthusiasm for the stock. By the end of the first day of trading, SpaceX’s market capitalization exceeded $2 trillion — placing the company as the 5th largest on planet Earth by that measure. If we measure by sales (and Bloomberg estimates SPCX will do $36 billion this year), SpaceX would rank around the 500th largest in the world. If we measure by profits…then we can’t, because the company doesn’t expect to have any in the near future.
For the record, I have been spectacularly wrong on my predictions for Elon Musk-owned companies. For instance, I always found his Tesla sales targets and autonomous driving predictions laughable — and they were — but the stock went higher anyway. Then I thought he’d destroy Twitter’s value. Revenue and users plummeted, but he merged it into his AI start-up xAI, which was then acquired by SpaceX. Given the sum of the parts, one can see how I’m a bit skeptical of the valuation placed on the company now. To me, it looks strangely like this generation’s AOL, but like I said, my skepticism is likely a good sign for all of you SpaceX bulls out there.
A New Gilded Age?
Given the number of headlines about today’s technology revolution and exceptional profit growth, one would expect the lives of the average American to be improving substantially, but we don’t see that in the data, at least not yet. Nor do we see it in how consumers feel – as illustrated by the chart on page 1. What Kyla Scanlon called a “Vibecession” may, in fact, have a historical name: Engels’ Pause. The term describes a period during the early Industrial Revolution in Britain (1780–1840) when output per worker and national income grew substantially, but real wages for workers stayed largely flat for half a century. The gains accrued to large business owners and were reinvested in their companies, leading to rising corporate profits and rising income inequality. Living standards for ordinary workers didn’t clearly improve until the 1850s. A similar dynamic played out during the Gilded Age in the U.S., when rapid industrialization caused the fortunes of a few large business owners – the Vanderbilts, Carnegies and Rockefellers – to skyrocket, while workers’ wages stagnated. Eventually, workers benefited from the rapid growth in corporate profits…but it took decades.
If we are in the early innings of an Engels’ Pause, the investment implication is worth sitting with. Concentrated gains in a handful of AI-driven companies can persist for longer than skeptics expect – as I’ve learned the hard way with Tesla. But they also tend to resolve. History suggests that as productivity gains eventually broaden into wages and consumer spending, the quality companies that have been passed over in the frenzy tend to reassert themselves. Patience and diversification are the only sensible response when the lights are flickering. I can sit through a few more episodes, but I hope it doesn’t take a few more decades.
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