Bank of America CEO Brian Moynihan delivered a striking message about the state of the American consumer during recent public remarks: ignore what people say they’re feeling and watch what they’re actually doing with their money. According to Moynihan, consumer spending remains robust, with Americans continuing to book cruises and vacations despite expressing pessimism in surveys.
This disconnect between sentiment and behavior highlights a fascinating split in the US economy right now, and the implications reach far beyond simple consumer confidence numbers.
The Sentiment-Spending Paradox
Moynihan emphasized a critical observation during his appearance on Fox Business: “Consumer spending is strong as they are looking at what people say they are going to do versus what they are going to do, but they focus on what they are doing. In October to spend more money on cruises and vacations are not consistent with what polls say about their feelings.”
The data backs up this paradox. Consumer sentiment currently sits at a three-year low, yet spending patterns tell a completely different story. Americans are opening their wallets for discretionary purchases like travel and entertainment—purchases that typically get cut first when people genuinely feel financially stressed.
What’s driving this behavior? The wealth effect from surging stock markets appears to be the primary catalyst.
The Wealth Effect in Action
The numbers here are staggering. The S&P 500 has climbed 14% year-to-date, and AI-related stocks alone have added $5 trillion to household wealth over the past year, according to JPMorgan research. For Americans invested in the market, portfolio gains are translating directly into increased spending.
Research shows this wealth effect is quantifiable and real. For every $1,000 increase in stock portfolio value, consumers spend an additional $35 to $50 more than they otherwise would. When you’re watching your 401(k) balance surge month after month, that vacation or luxury purchase starts feeling more justified.
The problem? This creates a two-tier economy that’s increasingly difficult to manage from a policy perspective.
The Federal Reserve’s Aggregate Problem
Here’s where Moynihan’s optimistic take on consumer spending starts getting complicated. Market analysts point out a fundamental flaw in how the Federal Reserve approaches monetary policy: they rely heavily on aggregate consumer data that masks enormous disparities.
Roughly 80% of Americans aren’t meaningfully participating in the stock market wealth surge that’s driving overall consumer spending numbers higher. For households without significant equity investments, the economic picture looks dramatically different. They’re dealing with elevated prices across essentials—food, housing, transportation—without the compensating boost from investment gains.
Meanwhile, affluent households with substantial stock portfolios weathered the Fed’s restrictive monetary policy without missing a beat. When interest rates climbed, they simply shifted cash into money market funds earning 5% returns. For this segment, restrictive policy didn’t restrict anything—it actually provided another income stream.
This creates a dangerous feedback loop for policymakers. Aggregate spending numbers keep climbing, suggesting the economy can handle continued restrictive policy. But the composition of that spending—driven primarily by wealthy households benefiting from asset appreciation—tells a different story than the headline figures suggest.
The Risks of Paper Wealth Spending
The wealth effect carries inherent dangers that become more pronounced the longer markets stay elevated. When consumers make spending decisions based on unrealized portfolio gains, they’re effectively treating paper wealth as if it’s already in their bank account.
This becomes particularly risky for those approaching retirement. The money in a 401(k) is meant to be protected capital, not a mental account available for discretionary spending. Yet as portfolio balances surge, the psychological impact makes that nest egg feel more accessible.
If consumers are financing big-ticket purchases on credit cards while justifying the debt with rising 401(k) balances, they’re setting themselves up for significant vulnerability if markets correct. The spending happens immediately, but the portfolio gains that justified it can evaporate quickly.
Adding to this concern: despite moderating commodity prices, consumer-facing prices haven’t come down meaningfully. Food prices and services remain elevated—often 20% or more above pre-pandemic levels. Retailers discovered they could charge these higher prices and maintain them even as their input costs moderated.
Cultural Shifts and Credit Availability
Looking at longer-term trends, there’s evidence of a fundamental cultural shift around spending and credit that’s been building for decades. The transformation accelerated in the 1980s as consumer credit became increasingly accessible and sophisticated.
As credit markets evolved and borrowing became easier, spending norms changed. What was once considered extravagant became expected. The availability of easy credit fundamentally altered consumer behavior patterns, creating generations of Americans who view debt-financed consumption as normal rather than exceptional.
This cultural backdrop makes the current environment particularly tricky. Years of easy money policies and readily available credit have reinforced spending behaviors that may not be sustainable when economic conditions tighten.
Market Timing and Risk
For investors, the wealth effect creates its own set of challenges. Historical patterns show that much of the recent market gains have been concentrated in specific sectors—particularly AI and technology stocks. While early investors in these areas have seen spectacular returns, the question becomes whether current levels represent opportunity or excess.
Market history suggests investors tend to pile into high-growth areas at exactly the wrong time, buying after the biggest gains have already occurred. The concentration of recent wealth creation in just 30 AI-related stocks raises questions about sustainability and broader market participation.
If you bought equity index funds after the 2008 financial crisis, you’ve seen gains exceeding 1,000% in the S&P 500. But investors who entered at different points experienced vastly different outcomes, and timing remains crucial for long-term returns.
What This Means Going Forward
Moynihan’s observation about consumer behavior versus sentiment captures something important: aggregate economic data increasingly masks divergent realities for different segments of the population.
For policymakers, this creates genuine challenges. Do you tighten policy to cool overall spending even though much of that spending is concentrated among wealthy households who are relatively insensitive to rate increases? Or do you risk letting inflation persist for lower-income households who are already struggling?
For consumers, the message is clear: be cautious about making permanent spending decisions based on temporary portfolio gains. Market wealth can evaporate far faster than spending habits can be adjusted.
The key question moving forward is whether the current wealth-driven spending can be sustained, or whether we’re setting up for a painful adjustment when market conditions eventually normalize. Moynihan sees continued consumer strength, but that strength is built on a foundation that’s more fragile than aggregate numbers suggest.
Watch consumer credit metrics, savings rates, and spending patterns across income segments—not just overall spending totals—for early warning signs of stress in this bifurcated economy.