What's Happening
Record equity markets worldwide are generating a wealth effect that is driving consumer spending, but this consumption surge is simultaneously stoking inflation pressures and eroding purchasing power for wage earners outside the asset-holding class.
Market Impact
Central banks face a policy bind: equity strength supports growth and financial stability, but wealth-driven spending threatens price stability. Inflation-sensitive sectors (energy, commodities, discretionary) could see margin compression if central banks tighten in response.
Broader Implications
Wealth inequality is widening as asset holders benefit from market gains while wage growth lags inflation. This dynamic is politically volatile and economically fragile if equity valuations correct.
