The much-debated K-shaped economy is no longer a theoretical construct. It is increasingly visible in consumer spending patterns, and ETFs are quietly positioning for it.
According to Eric Clark, portfolio manager of the Alpha Brands Consumption Leaders ETF (NASDAQ:LOGO) and CIO at Accuvest Global Advisors, the divide between higher- and lower-income consumers remains stark heading into 2026. "The upper part of the K, the higher-income (cohort) with real assets and homes, is doing pretty well and spending really well," Clark said. "The small, the lower income cohorts, are struggling, because inflation is still present in a lot of parts of our lives."
That divergence is creating an unusual setup for consumer-focused ETFs. On the surface, U.S. retail sales remain resilient, helping broad consumer discretionary funds like the Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) hover near highs. But Clark noted that spending strength has been narrow rather than broad-based. "Consumers are being very choiceful," he said, adding that discretionary purchases increasingly hinge on brand loyalty and perceived value.
This selectivity has favored value-oriented retailers, a trend reflected in ETFs with heavy exposure to Walmart Inc (NASDAQ:WMT), Costco Wholesale Corp (NASDAQ:COST), and off-price chains. Funds such as the SPDR S&P Retail ETF (NYSE:XRT) and the VanEck Retail ETF (NASDAQ:RTH) have seen performance increasingly driven by a handful of value leaders rather than across-the-board retail strength. Clark said Walmart, in particular, remains a standout. "We still love Walmart. It deserves to be part of the trillion-dollar club, and that probably happens in 2026," he said.
Meanwhile, consumer staples ETFs like the Vanguard Consumer Staples ETF (NYSE:VDC) offer exposure to defensive segments of the market as lower-income households pull back. Clark pointed to rising credit card usage as a warning sign, noting that some consumers are "using credit to fill the gap" as prices remain elevated.
What makes the setup more puzzling is sentiment. Consumer confidence readings remain near historic lows even as equity markets trade close to record highs. "Consumer sentiment at all-time lows, with markets near all-time highs and retail sales still doing well, is a very odd phenomenon," Clark said, calling the persistence of this disconnect a rarity.
For ETF investors, the takeaway is that "the consumer" is no longer a single trade. Active strategies like the LOGO ETF are leaning into the winners of the K-shaped economy, companies serving value-conscious shoppers while also benefiting from productivity gains through AI, while avoiding broad exposure to segments most vulnerable if employment conditions weaken.
As Clark put it, everything ultimately hinges on jobs. "If you have a job and feel secure, you spend. If not, you become much more value-conscious, trying to save where possible while being more selective about discretionary purchases." ETFs, it seems, are already taking sides.
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