There's a tale of two economies playing out in America right now, and if you want to see it in action, just look at ETF performance. The funds tied to services, travel, experiences, and digital shopping are holding up remarkably well, while those catering to lower-income households are limping along. Welcome to the K-shaped economy, where the top keeps rising and the bottom struggles to keep pace.
The split is especially visible when you compare consumer-focused ETFs. Some are thriving on the continued spending power of affluent Americans, while others are weighed down by the financial stress hitting Main Street.
The Winners: Service and Experience ETFs
The Invesco Dynamic Leisure & Entertainment ETF (PEJ) is having a solid year, up 14% so far. This fund tracks restaurants, entertainment venues, and live events—exactly the kind of discretionary spending that higher-income households haven't pulled back on. People are still going to concerts, dining out, and paying for experiences, and it shows in the numbers.
Similarly, the iShares U.S. Consumer Services ETF (IYC) has gained 8% year-to-date. It covers media, travel, retail services, and online platforms—all areas where discretionary spending has remained surprisingly steady among those who can afford it.
Then there's the Amplify Online Retail ETF (IBUY), which is surging to record highs thanks to blockbuster Black Friday and Cyber Monday sales. High-income consumers are driving online demand for everything from electronics to apparel and home goods, and this fund is catching the wave.
The Consumer Discretionary Select Sector SPDR Fund (XLY) is also riding this trend, anchored to higher-end consumption patterns. It's packed with service-oriented giants like Amazon.com, Inc. (AMZN) and Starbucks Corp (SBUX), which continue to outpace the broader market.
The Losers: Retail Exposed to Lower-Income Consumers
On the other side of the divide sits the SPDR S&P Retail ETF (XRT), which isn't enjoying the same tailwinds. This fund has more exposure to lower-income consumers, and it's feeling the pain. Weakness in small-business hiring and affordability pressures are weighing on broad retail performance—a textbook example of the "bottom of the K" struggling to keep up.
Why This Split Actually Makes Sense
Here's where it gets interesting. Bank of America economist Aditya Bhave argues that this divide, while stark, is actually stabilizing in a weird way. Spending from wealthy households can prop up the labor market even when payroll numbers look soft and small businesses are cutting jobs. Why? Because five out of every six jobs in the U.S. are in services, Bhave told Yahoo Finance. As long as affluent consumers keep spending on services, employment holds up better than you'd expect.
Corporate executives are seeing this firsthand. Macy's CEO Tony Spring recently noted that spending at Bloomingdale's remains strong, even as budget-conscious shoppers pull back at Macy's flagship stores. It's a classic K-shaped economy in action—one company, two very different customer experiences.
The Big Question: What Happens If the Top Cracks?
The obvious risk here is what happens if the "top of the K" eventually falters. If high-income households start tightening their belts—whether due to stock market volatility, job market concerns, or something else—these service-sector ETFs could lose their primary support beam.
But for now, the data suggests that affluent Americans are still spending freely. Online holiday sales set records, discretionary demand remains resilient, and service-sector ETFs continue to benefit from this high-income tailwind. As long as the wealthy keep splurging on experiences, travel, and digital purchases, these funds have a runway.
It's not a particularly comforting economic picture—a recovery where only half the population is actually recovering. But if you're looking for pockets of strength in the ETF world, following the money trail of high-income spending is proving to be a reliable strategy.