This year initially met hopes for a more evenly distributed market rally. The first months of 2025 saw equities and other risky assets finally broaden beyond a handful of dominant names. Yet, by mid‑year, it was clear that this broadening had remained marginal. Market leadership quickly reverted to US and technology stocks – the same dynamic that has shaped overall performance since 2020. Although this time, Chinese tech has also joined the party.
The concentration of returns is not confined to equities. A look across global macroeconomic data reveals similar levels of difference, with a small number of economies, sectors and households capturing the biggest benefits from growth while the rest lag. Economists refer to this unequal pattern as a K‑shaped economy – a divergence in economic and financial paths among groups within the same system, where some thrive while others stagnate.
This week, Simply put explores different scenarios that illustrate this split and help measure its true extent.
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A K‑shaped world economy
The US most clearly embodies this notion of a K‑shaped recovery. The idea is simple: from a common starting point – the economic shock from the pandemic in 2020 – some segments accelerate upwards while others spiral downward. The thriving branch of the K represents the winners – households, sectors and regions – that benefit from growth; while the declining branch represents those left behind.
Figure 1 highlights two of these scenarios:
- The Atlanta Wage Growth Tracker – which measures wage growth by income quartile – illustrates this diverging outcome. During 2021–2022, the post‑Covid rebound lifted US wage growth across all income groups, but mostly for lower earners. Since May 2024, however, that pattern has reversed. The top earners have seen significantly faster wage gains than those at the bottom. This reversal usually appears around slowdowns, yet this does not appear to be the current case for the US economy. Here, top earners form the upper leg of the K, while low earners form the lower leg
- For a more global view, the evolution of rebased real GDP per capita1 confirms this pattern. Between 2010 and 2019, US per‑capita GDP grew to form a 10% gap over that of the rest of the G7. Since 2022, the G7 (ex-US) has stagnated while US real GDP per capita has continued to climb sharply, widening the gap nearer to 25%. In this instance, the world’s largest economy has surged ahead, while its peers have failed to keep up.
The two charts present a sobering image of a K‑shaped economy at work – a clear distinction between those with accelerating income growth and regions or groups that have flatlined. The data suggests that while aggregate performance remains solid, prosperity is becoming increasingly narrow in its distribution. What looks like resilience in the headlines conceals a widening divide beneath the surface.
FIG 1. US wage growth per quartile of income and rebased G7 real GDP per capita2
Financial markets vs the economy
Such divides hardly stop at GDP or wage data; they naturally extend into capital markets. Figure 2 illustrates this point in:
- The relationship between profits and wages in the US. Between 1997 and 2019, their cumulative growth moved roughly in tandem. Companies shared the fruits of growth between labour and capital at a relatively balanced pace. Since 2020, however, profits have pulled sharply away from wages. This widening gap signals higher productivity benefits capital owners far more than the workforce, a dynamic strengthened by tax cuts and strong corporate margins. Productivity improvements are welcome, but their rewards have grown increasingly concentrated on the profit side of the equation
- Relative style performance. Comparing the performance of growth and value styles in the US and Europe reveals a similar imbalance. US growth has massively outperformed value since 2020, driven by technology. US value has delivered returns comparable to those for European value, while European growth has barely moved since 2023. Once again, the divergence is clear – a few segments have captured disproportionate performance. Thus, within a single global market cycle, we find the same pattern of winners and laggards – an unmistakably K shaped hierarchy.
The examples underscore that a K shaped dynamic does not necessarily pit ‘good’ against ‘bad’ sectors, but rather reveals inconsistent participation in growth and returns. It is the fragmentation itself – across regions, industries and income groups – that characterises this phase of the world economy.
FIG 2. Wage progression vs profits and performance of equity styles3
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The implications for multi-asset investors
Understanding this mosaic of diverging trajectories has important implications for portfolio management. Today’s environment demands a blend of exposures capable of adapting to a split world.
Momentum‑oriented strategies are well‑positioned to capture the upper leg of the K, focusing on persistent trends and the segments where structural momentum remains strong. Meanwhile, the lower leg – the areas that have lagged – may offer longer‑term opportunities for value and carry, where valuations are compressed and cash‑flow stability compensates for growth scarcity.
At the same time, a K‑shaped world amplifies the need for true diversification. When macro and market dynamics no longer move in sync, multi‑asset portfolios that balance price appreciation, carry and diversification can help smooth returns. Diversification is no longer a tool for optimisation – it is a necessity for resilience.
Simply put, a K shaped scenario is lifting markets, driven by a handful of winners while the rest tread water. Investors must acknowledge this K‑shape when building portfolios fit for today’s uneven world.
To learn more about our All Roads multi-asset strategy, click here. Macro/nowcasting corner
The most recent evolution of our proprietary nowcasting indicators for global growth, global inflation surprises, and global monetary policy surprises is designed to track the recent progression of macroeconomic factors driving the markets.
Our nowcasting indicators currently show:
- Our growth nowcaster remained stable over the week, with a slight decline driven by signals from China, where a deterioration in exports was observed
- Similarly, our inflation indicator edged lower, mainly due to weaker export data from China
- Our monetary policy signal stayed broadly unchanged, except for China, reflecting the same factor impacting growth and inflation.
World growth nowcaster: long-term (left) and recent evolution (right)
World inflation nowcaster: long-term (left) and recent evolution (right)
World monetary policy nowcaster: long-term (left) and recent evolution (right)
Reading note: LOIM’s nowcasting indicator gather economic indicators in a point-in-time manner in order to measure the likelihood of a given macro risk – growth, inflation surprises and monetary policy surprises. The nowcaster varies between 0% (low growth, low inflation surprises and dovish monetary policy) and 100% (the high growth, high inflation surprises and hawkish monetary policy).
