Wall Street’s wealth engine powers through job-market anxiety

To American workers already anxious about their job security in the age of AI, Friday’s economic data was a gut punch: the clearest sign yet that hiring is stalling.

Yet for capital owners, it underlined a different reality. Even as jobs weaken, investors expect the Federal Reserve to shield them from the slowdown — and they’ve put hundreds of billions on the line betting that their assets will hold up.

That doesn’t mean stocks can’t falter. They slipped Friday, albeit modestly, as weaker hiring underscores the risk for corporate earnings ahead. But the setback was small. Bonds rallied, cushioning diversified portfolios, while equities remain just shy of record highs amid the strongest cross-asset run in four years.

That resilience came in spite of a Friday report that laid bare fresh strain in the real economy. Payrolls barely budged, unemployment climbed to its highest since 2021, and revisions confirmed the weakest stretch of hiring since the pandemic. Look under the hood of markets, however, and the dispiriting economic picture is hard to see: The Russell 2000 Index of small-cap stocks has now advanced for five straight weeks and credit spreads hover at decade lows.

“For those with financial assets, real estate, they are experiencing a sense of permanence to their wealth,” said Peter Atwater, an adjunct professor at the College of William & Mary. “Those at the bottom, though, they experience the income effect and are really struggling because they have no benefits of ownership.”


Rate cuts are designed to ease the burden on indebted households and support job seekers. In practice, though, the greater lift often comes through financial markets. Rising asset values cushion portfolios and sustain consumption even as wages lag.

“That boost to wealth is supporting consumption and that is what drives the economy more than anything else,” said Jeffrey Rosenberg, a portfolio manager at BlackRock Inc., on Bloomberg Television. “That’s what eases the concern here around the slowing in the jobs market.”

A fresh analysis by the Congressional Budget Office underscores how the income divide is only set to grow. President Donald Trump’s “One Big Beautiful Bill Act” would strip the poorest tenth of households of about $1,200 a year, a 3.1% cut to already thin incomes, while the wealthiest 10% would collect an average boost of $13,600, or a 2.7% increase. The law redistributes resources upward, compounding the divide exposed by a labor market losing steam.

That fiscal tilt coincides with a monetary backdrop that favors asset holders as well. For many, the labor slowdown looks less like a threat than a tailwind: lower borrowing costs promise to lift portfolios and cheapen mortgages for those able to buy homes, while corporate tax breaks and earnings deductions add another layer of support. Traders are now pricing in roughly six rate cuts by the end of next year — a pivot with few precedents with inflation this sticky and equities this buoyant.

The scale of the wager is clear. Heading into Friday’s report, Wall Street was already on track for the best quarter across assets since mid-2021. Bond ETFs attracted a record $49 billion in August as traders ramped up wagers on cuts, while gold hit an all-time high on a falling dollar and renewed doubts about Fed independence.

Until recently, easing with inflation above 3% alongside an equity rally had been rare. The S&P 500 has climbed 9% over the past three months, a pre-easing run that before last year hadn’t occurred in two decades.

For some, that’s reason to worry. When the Fed began cutting rates a year ago, 10-year Treasury yields climbed a full percentage point in just four months. Now traders are wagering on a steepening curve — short-term yields pulled lower by Fed cuts, long-term yields rising on inflation concerns.

“If the long end of the curve increases when the Fed cuts the rate, you may well see a selloff in the stock market as inflation fears resurface,” said Jeff Muhlenkamp, who has increased his fund’s gold exposure. “I’ll bet gold jumps up too.”

Still, investors have been repeatedly punished for skepticism in the Trump era. Conviction has built on Wall Street that should things deteriorate, the president and Treasury Secretary Scott Bessent would act to prevent it. The administration famously dropped the worst of its tariff threats in April after a selloff, and many see that episode as precedent.

“It’s buy the dip mentality, which ultimately is within the fact that policy has your back,” said Vincent Deluard, global macro strategist at StoneX Financial. “And every time, every cycle it reinforces itself. And that policy put resets at a higher level.”

Past monetary-easing cycles show the unevenness clearly: weaker hiring dims prospects for workers even as lower rates cushion those with capital to deploy. Along the way, wealth gaps widen — a trend accelerated by the post-pandemic equity bull run. That divide is most visible in stock ownership. While a record share of American households now hold equities, the bottom half control just $500 billion — a fraction of the $23 trillion owned by the top 1%, according to the Fed.

“Investors have been paid to ignore geopolitical risk, they have been paid to ignore all economic risk,” said Atwater. “Those at the top have no appreciation for the mounting despair that exists at the bottom.”