The S&P 500 just pierced 7,000, marking a fresh peak. Goldman Sachs notched its second-best quarterly revenue ever. Morgan Stanley’s equities traders set a record. JPMorgan, Bank of America, and Citigroup all hit stock-trading highs. Wall Street’s five biggest banks eye more than $40 billion in first-quarter trading revenue—13% above last year. And yet. Americans hit a 74-year low in economic optimism. University of Michigan’s preliminary April consumer sentiment plunged to 47.6, down 10.7% from March. Worse than the 2022 trough.
Gas pumps the pain. National average: $4.16 a gallon. The war in Iran shut key oil chokepoints like the Strait of Hormuz for months, sparking the worst energy crisis on record, per the International Energy Agency, as detailed in Fortune. Brent crude surged past $120 after the March 4 closure, stranding oil and LNG exports, according to Wikipedia’s summary of market data. Volatility pours cash into banks as clients trade frantically. But households feel the hit.
Claudia Sahm, chief economist at New Century Advisors and creator of the Sahm rule for spotting recessions, cuts through the noise. “Stock markets respond to risks shifting around,” she told Fortune. “Households respond to reality.” Five years of shocks—pandemic, inflation spikes, tariffs, now war—have worn consumers down. “It’s not just about the last hit to their finances,” Sahm added. “It’s a period of time over the last five years—there’s just been one disruption after another, and it builds up.”
This K-shape sharpens. The top 10% of households own 93% of stocks. Bank of America charts show high-income discretionary spending climbing, thanks to tax refunds from the One Big Beautiful Budget Act. Lower earners? Crushed. “The gas price shock puts greater strain on discretionary spending by lower-income households,” wrote BofA’s Shruti Mishra, “since they spend a larger share of their income on gas, and save less.” Goldman Sachs slashed its 2026 consumption growth forecast to 1.2% from over 2%, citing eroded real disposable income.
The consumer lacks resilience. “The consumer is not as resilient as it was back when Russia invaded Ukraine,” Sahm said. Labor market weaker. Balance sheets thinner. Broad slowing ahead. “We’re in a place where there’s enough broad-based slowing that I expect this to make a dent in consumer spending. That could be a speed bump for the stock market, and that is not my impression of what is baked into the earnings estimates.” Markets shrug off the gloom—for now.
Iran’s war amplifies everything. White House weighs the fallout, as President Trump and advisers hear from executives on Wall Street and Main Street hits from prolonged fighting, reports Wall Street Journal. Oil past $100 lingers, wiping trillions from stocks before partial recoveries on cease-fire hopes, per Yahoo Finance via Bloomberg. A longer Strait shutdown could shave a full point off global growth, maybe tip the U.S. into shallow recession, warns WSJ. U.S. somewhat insulated as energy exporter, but pump prices sting inflation-weary families.
Manipulation whispers grow. Online chatter accuses Trump of ‘jawboning’—rhetoric sparking dips for insiders to buy. CFTC probes oil futures surges before announcements. Sahm demurs. “That’s a very specific thing,” she said of manipulation. True sense means insiders timing trades on exclusive info. Still, Trump’s style conditions dip-buying. “There is a conversation he’s having with markets, and he’s listening to markets,” she noted. Investors chase post-dip rallies, fearing to miss out again.
But ignore him too long? Risky. “I kind of worry about the day where markets completely ignore him,” Sahm said, “because then we’re in a place where this has really gone off the road.” Sentiment polls echo the divide. Axios reports decisively negative views despite solid metrics, via X post from @AlexThomp. Focus groups turn grim; ‘wait and see’ vanishes, per @SarahLongwell25. Record lows in Michigan survey—the deepest ever.
Peter Atwater, who flagged the K-shape early, sits out stocks. Foreign investors might punish U.S. firms for war-fueled inflation, he tells Business Insider. Wells Fargo’s Ohsung Kwon sees markets so far insulated from oil shock. Yet consumer sentiment craters below 50-year marks. Trump’s market-calming playbook falters as war drags, says AP News. S&P and Nasdaq reclaim records, up 6% since war start, notes KTVZ via CNN. VIX calms.
And here’s the rub. Volatility sustains bank profits, props markets. But Main Street buckles under cumulative strain. Gas at $4-plus crimps budgets. Inflation resurges. Midterms loom; Trump admits prices may stay high through November, per YouTube analysis. IMF flags oil and war derailing growth. Reuters polls lift 2026 Brent forecast to $82.85 on stalled Hormuz flows. All paths: higher prices, slower expansion.
Sahm’s speed bump looms large. Earnings cheerlead ignores it. Households track reality—empty wallets, full pumps. Wall Street cashes volatility checks. Main Street pays the bill. War tests how long the K holds before cracking.
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