The Challenge of the 'K-Shaped Economy' in Hospitality
Editor's note: Our way of life is changing...
At a time when many Americans are struggling to stay afloat, you have every reason to be concerned about where the economy is headed next.
As Marc Chaikin – founder of our corporate affiliate Chaikin Analytics – explains, what could come next could alter how you manage your money throughout this market turbulence.
In today's Masters Series, adapted from the November 21 issue of the Chaikin PowerFeed daily e-letter, Marc details how this economic instability is impacting one particular area of the market...
The Challenge of the 'K-Shaped Economy' in Hospitality
By Marc Chaikin, founder, Chaikin Analytics
You might have heard about the "K-shaped economy" lately...
Folks are using the term to describe current conditions. Specifically, it refers to how some people are doing great in the current economy... while others are struggling mightily.
That's where the "K-shaped" part comes in. One part of the K is going up. But the other part is going down.
It's a fair description of what's happening right now...
Recent data shows that the top 10% of Americans (in terms of income) account for more than 49% of all consumer spending.
To put that number into perspective, the percentage was in the 40% to 45% range for most of the 2000s and 2010s. And it was around 35% in the early 1990s.
Research from Bank of America (BAC) paints a similar picture...
Its latest numbers show that higher-income consumers increased their spending by 2.6% year over year in November. That compares with 0.6% growth for low-income households.
It's not just about spending. Wages are rising much faster for higher-income folks.
Bank of America found that wages for high earners grew by 4% year over year in November. Meanwhile, year-over-year wage growth that month was just 1.4% for lower-income households.
The numbers don't lie...
America's top 10% is spending a lot. And most other folks are holding steady or pulling back.
The hotel industry is seeing a similar situation...
In November, hotel giant Marriott (MAR) announced its latest quarterly results. The company beat expectations for revenue and earnings. And it was mainly thanks to sales from its luxury properties like Ritz-Carlton and St. Regis.
On the other hand, the "budget" side of the business was weak.
Marriott's results aren't unique. The entire hotel space is seeing the same thing...
The better a hotel is, the stronger its bookings.
In other words, there's a clear connection between a hotel's quality/price and its revenue. As we've covered before, high-quality service is critical for successful companies in the hospitality space.
That's especially important, because the industry is in a tough spot right now...
Industry tracker CoStar recently downgraded its outlook on U.S. hotel demand. It expects demand to fall 0.4% in 2025. That's not a big decline... But it would mark the first annual drop since the pandemic.
The drop isn't hitting all hotels equally. Earlier this year, CoStar's data showed that luxury and upscale hotels were seeing rising demand. Meanwhile, the worst declines had been in the "economy" segment – the lowest tier in terms of hotel quality.
Put simply, it's more important than ever for hotels to maintain or improve their service quality.
Keep in mind that hospitality companies face a lot of the same price pressures as regular folks. They're vulnerable to rising labor costs, food and beverage prices, insurance premiums, and property taxes.
With all this in mind, let's next turn to my firm's one-of-a-kind Power Gauge system for a bigger overview...
As you would expect, regular folks spend less when their economic future is murky. It all ties into broader consumer sentiment. And of course, it cuts across multiple industries.
Right now, the Hotels, Restaurants, and Leisure industry has 120 stocks with Power Gauge ratings. And it includes big names in the hospitality space like Marriott, InterContinental Hotels (IHG), Hilton Worldwide (HLT), and Hyatt Hotels (H).
Right now, only 13 of the stocks in the Hotels, Restaurants, and Leisure industry receive a "bullish" or better grade. And this compares with 35 stocks with "bearish" or worse ratings.
Folks, I'm not saying hotels are doomed...
But again, in a K-shaped economy, it's especially important for hotels to focus on high-quality service.
And at the very least, our system is flagging caution for the broader Hotels, Restaurants, and Leisure industry right now. As such, investors in the space need to pay attention to the best operators.
Good investing,
Marc Chaikin
Editor's note: In 2020, Marc Chaikin called the end of the longest bull market in history, weeks before stocks crashed more than 30%. Two years later, he sounded the alarm again, 90 days before stocks plummeted 20%.
Now, he's calling for the next great bear market in 2026... That's why he just went on camera to tell you exactly how to prepare – including exactly when to sell your stocks for the highest potential gains and the lowest possible losses.