A ‘K-shaped’ economy has investors on edge. BofA says it may hold up.

A growing chorus on Wall Street is warning that the US economy is becoming increasingly K-shaped, with higher-income households powering spending while lower-income consumers struggle with affordability. It mirrors what investors have seen in the stock market, where Big Tech continues to drive the major indexes even as other sectors lag behind.

The concern: How long can those two realities coexist before something breaks?

“I don’t think they’re going to coexist forever,” Bank of America senior US economist Aditya Bhave told Yahoo Finance during the firm’s 2026 outlook call this week. “Our view is that the bottom of the K will stabilize before the top of the K collapses. That’s underpinning our more optimistic view of the economy.”

BofA now expects 2.4% real GDP growth in 2026, an above-consensus call the bank sees as consistent with the economy avoiding recession.

Read more: What is a ‘K-shaped’ economy, and what’s causing the divide?

Bhave admitted the timing “feels counterintuitive,” given the release of softer labor market data.

Planned layoffs hit their highest November level since 2022, according to Challenger, Gray, and Christmas. And private payrolls unexpectedly shed 32,000 jobs in November, with small businesses hit hardest, yet another sign of the Main Street divide.

Still, he said BofA’s view comes down to a simple decision: “The first question is, is there going to be a recession or not? And if our answer to that is no … you’re much more likely to grow above 2% than below, which is why we’re landing at 2.4%.”

Bhave emphasized that the “haves vs. have-nots” split is real but not necessarily destabilizing in the near term. Higher-income households spend significantly more on services, which dominate the US job market. And despite the mixed signals, one piece of data pointed to ongoing resilience: jobless claims fell to a three-year low on Thursday.

“One reason to be less pessimistic is the following: Who spends more on services — higher- or lower-income folks? It’s actually higher-income folks,” he said. “So if you take $1 of spending and you tell me that it was actually spent by a higher-income household … I’ll say that’s more likely to have been spent on services.”

That matters because “5 out of 6 jobs in the US are in services,” Bhave noted. More spending on discretionary services “could actually be more supportive for the labor market” and “increase the chances that the labor market will stabilize.”

Companies are seeing the same split in real-time.

Macy’s (M) CEO Tony Spring told Yahoo Finance the retailer is benefitting from the K-shaped dynamic, especially at Bloomingdale’s, which saw 9% year-over-year sales growth in the third quarter.

Higher-income shoppers are still willing to splurge if they feel like the price is worth it, according to Spring, even as lower-income households pull back.

But that divide also underscores the risks Bhave is watching — in particular, whether the “top of the K” eventually cracks.

“That’s the risk scenario,” he said. “Where the top of the K collapses because you get some sort of shock in the markets, or maybe there’s enough momentum already baked into the pie in terms of labor weakening that you end up in a recession.”

Still, he stressed the economy has shown more resilience than many expected. “I don’t want to get all doom and gloom about the economy,” Bhave said. “I know there’s a lot of negativity out there, but I think there are also some positive stories that we can focus on.”

Among them: strength in higher-end spending and encouraging signals in BofA’s real-time card data, a trend Bhave said “has really struck us this year.”

Read more: Maximize your holiday grocery savings with these credit cards

In its most recent data, the bank noted holiday card spending was soft around Thanksgiving, but early-season demand, especially online and in discretionary services, has been firmer than feared.

On top of that, Black Friday online sales hit a record $11.8 billion, up more than 9% from last year, according to Adobe Analytics, and Cyber Monday sales climbed 7.1% year over year to $14.25 billion.

Shoppers leaned into electronics, apparel, and home goods, and tapped buy now, pay later at record levels to secure deeper deals.

Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance