The Great Disconnect: Financial Markets vs. the Real Economy

“Why soaring markets ignore consumer hardship — and why Main Street, not Wall Street, ultimately decides the cycle.”

In 2025, the stock market is partying like it’s a boom time – even as the real economy flashes warning signs. Equity indices have soared to near-record highs and tech stocks are roaring ahead on AI hype, pushing valuations into the stratosphere. Yet on Main Street, consumers and businesses are feeling the pinch: credit card delinquencies are climbing, debt loads are heavier than ever, and the once-red-hot labor market is noticeably cooling. This divergence between Wall Street optimism and economic reality is stark. History shows that such disconnects don’t last – and that the real economy ultimately leads the way. In other words, when markets and fundamentals clash, reality eventually wins. Below, we examine the evidence of this growing gap and why I believe it will resolve in the real economy’s direction.

Main Street Under Strain: Cracks in the Real Economy

Despite low headline unemployment until recently, many American households have been under increasing financial strain. Consumer debt has exploded – Americans’ credit card balances hit a new record high of $1.13 trillion by late 2023[1]. That alone is concerning, but even more telling is that people are struggling to pay those debts. The number of Americans delinquent on their credit cards (behind on payments) has been “ticking up” across all age groups, according to New York Fed data[2]. In fact, Fed researchers noted that credit card metrics have now “reverted to a level that is worse than pre-pandemic” – a clear sign of strain on household budgets[3].

To put it bluntly, financial stress is mounting for everyday people. Consider some recent data points:

· Record credit card debt: Total credit card balances surpassed $1 trillion for the first time in 2023[1], reflecting Americans leaning on credit to make ends meet.

· Rising delinquencies: The share of cardholders missing payments is climbing. By early 2025, the portion of credit card debt that’s seriously delinquent (90+ days overdue) reached levels approaching those seen during the 2008 crisis, an alarming development[4]. In the poorest communities, over 20% of credit card debt is now 90+ days delinquent, up from about 12% in 2022[4] – a surge indicating severe financial distress. (In fact, the Fed finds the current delinquency rates are broadly as high as the Great Recession, despite today’s far lower unemployment[4].)

· Household budgets under pressure: Consumers are also grappling with higher costs (from inflation) and record-high interest rates on that debt, which means more income going to interest payments. It’s no surprise that auto loan delinquencies and other debt defaults have ticked up alongside credit cards[5].

Figure 1: Rising Credit Stress Among Consumers. Percentage of credit card debt 90+ days delinquent in the United States (black line) versus in the poorest 10% of ZIP codes (dashed line). Delinquency rates spiked in the aftermath of the 2008 financial crisis, then fell during the 2010s expansion. Since 2021, however, they have been climbing again – reaching ~12% nationally and ~20% in low-income areas by early 2025. These levels are approaching those of the Great Recession, a troubling sign given the relatively strong labor market over this period. (Source: FRB NY Consumer Credit Panel/Equifax)