The stock market is at an all-time high. GDP is growing. And the Kraft Heinz CEO is watching lower-income shoppers run out of money before the end of the month.
These three facts are all true at the same time. That is not a contradiction. That is the point.
Rebecca Homkes, an economist and lecturer at the London Business School, went on Bloomberg Businessweek Daily this week to make a simple but uncomfortable case: the K-shaped economy - a term that describes an economy where one group of people is doing progressively better while another is doing progressively worse - is not a temporary hangover from the pandemic. It is a structural feature of American economic life. And now a war in the Middle East is turbocharging it.
"The K-shaped economy is here to stay," Homkes said. "And we continue to have more and more data reinforcing it."
The background
To understand a K-shaped economy, picture the letter K. The upper arm curves upward. The lower arm curves down. Both start from the same point - say, a pandemic, or a geopolitical shock - and then diverge. One group recovers and accelerates. The other falls further behind.
This is what happened in the United States after Covid-19. Government stimulus payments kept consumer spending afloat broadly in 2021 and 2022. But once that cash ran out, the divergence began. Wealthier households owned stocks, which rose. They owned homes, which rose. They received raises at the higher end of the wage distribution, which grew faster than inflation. Lower-income households, by contrast, saw wages stagnate relative to prices, watched their savings evaporate, and started dipping into debt to cover basics.
Inflation - the rate at which prices across the economy rise over time - hit everyone in 2022. But it hits hardest at the bottom, where a larger share of the household budget goes toward essentials: food, fuel, and rent. When those prices rise 20%, it is not an inconvenience. It is arithmetic. There is simply less money left for everything else.
Meanwhile, equity markets - the stock exchanges where shares in publicly traded companies are bought and sold - kept climbing. And since about 90% of stocks are owned by the wealthiest 10% of Americans, those gains are not broadly shared. The economic headline says the country is doing well. For most people, the lived experience says otherwise.
This gap between the aggregate number and the individual reality is the K-shape in practice.
What is actually happening
When Homkes laid out her case this week, she framed it around a trifecta of pressures: the economy itself, the ongoing war in the Middle East, and the arrival of artificial intelligence into the labour market. Each of these forces is complicated on its own. Together, they are pulling in the same direction.
Start with the war. On February 28, 2026, Israel and the United States launched military strikes against Iran. Iran responded by attacking energy infrastructure and threatening shipping through the Strait of Hormuz - a narrow waterway that handles roughly 35% of global seaborne crude oil. The initial shock removed approximately 10 million barrels per day from global supply. Brent crude - the international benchmark for oil prices, used as a reference point for contracts around the world - rose more than 50% above its January level by mid-April.
The World Bank now projects energy prices will surge 24% in 2026, the sharpest annual increase since Russia invaded Ukraine in 2022. Overall commodity prices - including food and fertilizer - are expected to rise 16%. The IMF's baseline forecast now puts global inflation at 4.4% for the year, with growth falling to 3.1%. In a worse scenario, where the Strait stays disrupted longer, inflation climbs to 5.4% and growth falls to 2.5%.
For Homkes, the war matters for the K in a very specific way. "Energy is a small percentage of daily spend for an American consumer," she explained. "But energy as an input is a large percent of that monthly wallet." Fill up a tank. Heat a home. Buy groceries shipped across the country. Every one of those things has an energy cost embedded in it. Higher oil prices do not just show up at the petrol pump. They ripple through every price in the economy.
At the bottom of the K, where wages are already "relatively stagnant," those ripples hit hard.
Meanwhile, retail sales data from March showed a slight bump. Homkes flagged it immediately as misleading. It was almost entirely explained by tax refunds - a one-time cash injection into household budgets. "It's like an insulin shock," she said. "You got a little bit of it. But that's going away."
The money trail
Here is where the K-shape becomes difficult to argue away.
According to Moody's, spending by the top 10% of earners grew 62% between the third quarter of 2020 and the third quarter of 2025 - more than any other income group. By the second quarter of 2025, research from Moody's Analyticsfound that the top 10% of Americans were responsible for 49% of all consumer spending. Half the economy, powered by one tenth of the population.
On the wealth side, it is even starker. Federal Reserve data confirms that the top 1% of American households held nearly 32% of total national wealth as of late 2025. The bottom 50% held 2.5%. As TD Economics noted in a February report, the top 20% of households now control roughly 72% of total household wealth.
This concentration shapes everything that flows downstream. Equity markets rise: the top benefits. Energy prices rise: the bottom suffers disproportionately. Tax cuts arrive: TD Economics estimates that the proposed policy changes in 2026 skew benefits toward higher earners. Budget-conscious chains like McDonald's are running promotions to win back customers who can no longer afford a regular visit. Airlines, meanwhile, are adding premium seats because the wealthy are still flying fine.
Homkes pointed to one number from the source she referenced: consumer spending at the top is still 10% above pre-pandemic levels. At the bottom, some moderate-income households were spending less in 2025, adjusted for inflation, than they were in 2019. Not less than the peak. Less than six years ago.
The war compounds this through the supply chain. Supply chains - the global networks of factories, shippers, and warehouses that get products from production to consumers - are being disrupted again, this time by Hormuz closures on top of existing tariff shocks that already stressed them after the pandemic. Every disruption adds cost. And who absorbs that cost?
Homkes put it plainly: "Chaos has a cost." Companies have to build in redundancy. Decision-making slows. Investment stalls. And those costs - tangible and hidden - are paid unevenly. A large company with strong cash flow can wait out a quarter of chaos. A lower-wage worker cannot wait out a quarter of higher petrol prices.
What people are doing about it
Corporations are making very visible bets on which part of the K they expect to survive. Luxury travel is expanding. Premium airline cabins are filling up. High-end retail is posting solid numbers. These companies have decided that the upper arm of the K is a reliable enough customer base to build around.
At the other end, brands that built their identities on broad middle-class appeal are scrambling. Fast food chains have launched value menus and limited-time deals to pull back customers who have quietly stopped visiting. Dollar stores expanded aggressively to serve households that can no longer afford full-price grocery runs.
On the labour side, the picture is similarly bifurcated. AI is entering the conversation not as mass replacement - Homkes pushed back firmly against that framing, calling headlines about AI-driven job losses "incredibly overstated" - but as reallocation. Companies are shifting capital budgets away from headcount and toward data centre infrastructure. The workers most exposed are at the entry level, where job openings are measurably declining. That is the point of entry for younger and lower-income workers - precisely the population already riding the lower arm of the K.
Governments are watching. The UK's Office of Budget Responsibility cut its growth forecast for 2026 sharply after the Hormuz disruption. The Bank of England, which had been expected to cut interest rates this year, is now considering hikes instead. Higher interest rates - the cost of borrowing money, set by central banks - would make mortgages, car loans, and credit card debt more expensive. Again, those costs fall heaviest on the households with the least cushion.
The IMF warned that the war shock is global but asymmetric: "Energy importers are more exposed than exporters, poorer countries more than richer ones, and those with meager buffers more than those with ample reserves." That sentence describes countries. It also describes households.
The bottom line
The K-shaped economy was already a defining structural feature of the United States before a single missile was fired in the Middle East. What the war has done is accelerate the mechanism: energy prices rise, supply chains get disrupted, inflation returns, and every one of those developments hits the bottom of the K harder than the top. Meanwhile, AI investment is quietly closing off the entry-level jobs that were the traditional first rung on the ladder up. The data does not suggest this divergence is about to correct itself. It suggests the opposite.
Timeline
- Q3 2020 - Q3 2025 - Spending by the top 10% of US earners grows 62%, according to Moody's, outpacing every other income group
- 2022 - The wealth gap begins widening again after a brief pandemic-era reversal; the top 20% hold roughly 72% of total US household wealth by Q4 2025
- Q2 2025 - The top 10% of Americans account for 49% of all consumer spending, per Moody's Analytics research cited by Morgan Stanley
- Late 2025 - The Federal Reserve confirms the top 1% hold nearly 32% of national wealth; the bottom 50% hold 2.5%
- December 2025 - KPMG's chief economist Diane Swonk tells Fortune she has "never seen anything like" the scale of consumer divergence
- February 28, 2026 - Israel and the United States launch military strikes against Iran; Iran retaliates with attacks on energy infrastructure and threatens shipping through the Strait of Hormuz
- March 2026 - Energy prices surge to a four-year high; the Federal Reserve Bank of New York publishes research showing the shock falling disproportionately on lower-income households; US retail sales bump slightly, driven almost entirely by tax refund season
- March 5, 2026 - CNN reports gasoline prices at their highest level of the year in the US; double-digit fuel price increases recorded across Germany in a single week
- March 30, 2026 - The IMF publishes analysis warning the Middle East shock is global but asymmetric, hitting energy importers and poorer nations hardest
- April 28, 2026 - The World Bank forecasts a 24% rise in global energy prices for 2026, the largest annual jump since 2022; overall commodity prices forecast up 16%
- April 30, 2026 - CFO Brew reports that some moderate-income US households spent less in inflation-adjusted terms in 2025 than in 2019
- May 7, 2026 - Rebecca Homkes appears on Bloomberg Businessweek Daily and declares the K-shaped economy "here to stay," citing war duration, devastation, and disruption as the key variables determining whether it worsens
Summary
Who: Rebecca Homkes, economist and lecturer at the London Business School, speaking to Bloomberg Businessweek Daily.
What: A declaration that the K-shaped economy - where wealthier Americans are pulling ahead while lower-income households fall further behind - is now a permanent structural feature of the US economy, not a temporary post-pandemic distortion. The war in the Middle East is accelerating the divergence through higher energy prices, supply chain disruption, and renewed inflation pressure.
When: The interview aired May 7, 2026. The underlying trends have been building since the pandemic; the war in the Middle East began February 28, 2026.
Where: The United States, with global implications for energy importers, lower-income countries, and supply-chain-dependent industries.
Why: A combination of forces - stagnant wages at the lower end, concentrated stock and housing wealth at the upper end, AI-driven reallocation of corporate spending away from entry-level hiring, and an energy shock that hits consumer prices unevenly - have made the split self-reinforcing rather than self-correcting.