Why the stock market and economy may seem out of sync
Traders work on the floor of the New York Stock Exchange during morning trading on July 08, 2026 in New York City.
Michael M. Santiago | Getty Images
Stocks were off to a blistering pace in the first half of the year. Meanwhile, the U.S. economy‘s trajectory is more tepid, somewhat divorced from that of stocks, economists said.
That disconnect may be confusing to consumers and investors who assume the stock market and economy mirror one another, moving in lockstep.
“I think there’s this widespread perception the two should be in sync,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank.
“But, from a purely analytical perspective, they’re two very different phenomena,” Seydl said. “We’re talking about apples and oranges in many ways.”
Stock market and economy diverge
Meanwhile, “real” U.S. gross domestic product — a measure of economic output, after inflation — has decelerated from about 3.3% in 2023 to roughly 1.9% so far in 2026, Seydl said.
To be sure, the state of the U.S. economy isn’t necessarily poor. The pace of growth has been “steady,” Seydl said.
Mark Zandi, chief economist at Moody’s, characterized GDP growth around 2% as “soft,” though. It’s roughly flat from last year, he said.
“We’re growing. We’re not in recession,” Zandi said. “But we’re not going anywhere quickly.”
Federal Reserve officials in June estimated the economy would grow at a 2.2% pace in 2026. Consensus among economists is largely concentrated around a 2% growth forecast for the year, Zandi said.
Meanwhile, the labor market is showing weakness, Zandi said. Labor force participation is near its lowest level in about 50 years outside of the Covid-19 pandemic. Employers are hiring at their slowest pace in more than 10 years, excluding the pandemic. Long-term unemployment has risen steadily.
Additionally, consumer sentiment tumbled to a record low in May amid fears of higher inflation, according to the University of Michigan’s Surveys of Consumers. Sentiment rebounded somewhat in June, though remains “unfavorable,” it said.
The stock market and economy generally “travel together” but sometimes “deviate quite significantly,” Zandi said.
“And this is one of those times,” he said.
Why the divergence?
Artificial intelligence seems to be the main reason for the divergence, economists said.
The stocks of AI companies have gone “skyward” and buoyed the broader stock market, Zandi said.
Technology accounts for about 35% of the stock market, and roughly 50% when considering an expanded technology group that also includes Alphabet, Amazon, Meta and Tesla — which are classified as consumer companies but trade like Big Tech, Seydl said.
Stocks generally trade based on future expectations of company performance — and, in the current environment, investors are incredibly bullish on the earning potential of technology companies, particularly those in the AI realm.
“The rise in earnings has been concentrated in the major…
Read More: Why the stock market and economy may seem out of sync