Goldman Sachs: Equity rally fuels consumption but widens wealth gap

Goldman Sachs strategist Elsie Peng has identified equity market gains as the primary engine of household wealth accumulation, noting that the benefits are heavily skewed toward the top income quintile. According to research highlighted by Yahoo Finance, this concentration of wealth is driving a significant 'wealth effect' on consumer spending, with the richest households accounting for nearly all recent growth in consumption.

Peng estimates that these wealth effects have increased annualised consumption growth by 0.3 percentage points over the past two years. Of that total, approximately 0.2 percentage points is attributed specifically to gains in artificial intelligence-related equities. Looking ahead, she projects a further 0.4 percentage point boost to consumption over the next year, sustained by the continued outperformance of AI stocks such as Nvidia and Micron.

The broader market context supports this analysis, with the Dow Jones Industrial Average recently surging 875 points to close at a fresh record high of 51,562. The rally has been driven by stronger-than-expected corporate earnings, substantial spending on AI infrastructure, and growing investor confidence in economic expansion. Major indices are sitting near all-time highs, with gains extending beyond tech to include UnitedHealth, Goldman Sachs, JPMorgan, and Johnson & Johnson.

The impact of this wealth effect is visible in retail earnings, which have remained resilient despite rising gas prices. Peng’s analysis suggests that the spending power of wealthy households has helped prevent declines in first-quarter results for major retailers including Best Buy, Target, and Walmart. This dynamic underscores how asset price inflation is translating into real-world economic activity, albeit unevenly across income brackets.

Market momentum has also been bolstered by strong corporate performance in other sectors. Amazon shares rose 31.9 per cent in a month following its fourth-quarter fiscal 2025 report, which beat expectations with $213.4 billion in revenue and $25 billion in operating income. The stock has gained 23,545 per cent since 2002, driven by sustained investor demand and buy pressure from large institutional investors.