BUSINESS

Last Friday, the U.S. economy got the best news it had seen in months with the release of the latest jobs report. Still, there are growing signs that the overall health of the economy is faltering, with only the rich benefiting while the poor continue to struggle. This kind of economic recovery is known as a K-shaped economy, where people in the upper arm of the ‘k’ see their wealth increase while those in the bottom half go in the other direction. According to a new Bank of America note, the clearest sign that the recovery is bifurcated is an unexpected increase in consumer spending on luxury items in March.It doesn’t take a Bank of America analyst to know that gas prices are rising sharply across America as the country begins the second month of its war with Iran. As of April 7, the average price for a gallon of gas is $4.14, well ahead of the $3.26 from a year ago and even the $3.41 from a month ago, according to AAA. The U.S. economy was relatively healthy before the start of the war on Feb. 28, per Axios. Yet 10-year bond yields have suggested for some time that inflation isn’t going anywhere soon, despite years of political hand-wringing over the issue.Now that the war is underway, experts expect energy prices to be just one of the casualties, as disruptions to fertilizer supply threaten food prices (the Gulf region provides nearly half of the world’s seaborne urea and 30% of global ammonia demand).Aluminum shortages (20% from Gulf states) threaten everything from aerospace to automotive manufacturing to construction to consumer electronics, according to the Atlantic Council.But somehow, amid all of this economic madness, American spending on luxury items is experiencing a resurgence it hasn’t seen in years.

Luxury spending is skyrocketing in the U.S.Cheng Xin on Getty Images

U.S. luxury spending has exploded since JanuaryLuxury spending has been one of the few Covid casualties that has stubbornly lagged a broader recovery in other consumer items. In fact, according to BofA, luxury spending had been down for over three years before it started showing signs of recovery. “US luxury spending had been a laggard in the discretionary spending arena for a significant period of time: prior to 2025 Q4, it had shown 13 consecutive quarters of negative YoY growth,” BofA analyst Ashley Wallace said in a note seen by TheStreet. “But there has been better news of late. Growth turned positive in 2025 Q4 and has accelerated further in 2026. Monthly data through March 21 shows the YoY growth rate at around 12%.”Q4 2025 was the first positive quarter in years, as spending grew about 1% year over year. Q1 2026 saw spending explode, increasing nearly 10%.Related: Rising gas prices force Americans to make unexpected changesAll income groups reported increased luxury spending in the period, but of course, those in higher income brackets spent more on those items. “All income cohorts are showing a recovery in luxury spending in 2026, although the strongest growth is among higher-income households – unsurprising given the broader ‘K’ shape we’re seeing in consumer spending,” according to BofA. “”One possible driver of the recovery is the fact that luxury spending as a percentage of overall US discretionary spending is currently relatively low, suggesting some catch-up activity. The fall-out from the conflict in the Middle East warrants close attention going forward, but for now the data looks solid.”Increased worker productivity helps fuel K-shaped economyAs the average American worker struggles, big corporations benefit from some of the highest worker productivity in years.According to Bank of America, since the Covid pandemic, national accounts data have shown a sustained increase in productivity, which is easily reflected in rising corporate profits.However, at the same time corporate profits are rising, labor income has steadily fallen as a share of U.S. GDP, creating the K shape that could define the U.S. economy for the foreseeable future.“For now, higher profits relative to wages are yet another driver of a K-shaped economy, as higher-income consumers tend to be more exposed,” according to BofA Securities.“Measured labor productivity (that is, output per hour) continues improving since the end of the pandemic and is mostly concentrated in the services sectors rather than manufacturing. Interestingly, real labor income is not growing at the same pace,” according to BofA.“In other words, productivity gains translate into higher corporate profits. This dynamic implies a higher share of the GDP pie going into corporate profits relative to labor income.”Related: Rising corporate profits, falling wages drive K-shaped economy

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If you’ve ever watched a big winner in your portfolio suddenly stall, you know the mix of pride and panic that hits your stomach at the same time. You see the green on your statement and, at the same time, you feel that “uh‑oh” in your chest.Bank of America just cut its rating on Carvana to neutral from buy and lowered its price target to $360 from $400. That still implies mid‑teens upside from here, according to CNBC. The change in tone hits harder because only a couple of weeks earlier, the same firm was pounding the table with a buy rating and a $400 target, arguing that Carvana’s vertical integration and online scale still justified a premium.Carvana’s stock nearly quadrupled in 2024 as the company cut costs, improved profitability, and became one of the best performers in auto retail. Shares are still up about 93% over the past year even after falling roughly 26% so far in 2026, according to CNBC. If you own it, you may be sitting on big gains and fresh doubts at exactly the same time.

Wall Street revamps Carvana stock for the rest of 2026.astudio/Shutterstock

Why Bank of America changed its mindOn the surface, Bank of America’s latest call looks modest: shift to neutral, trim the target, keep a bit of upside on the table. Underneath, the bank now sees 2026 as a tougher road for both Carvana and its customers.Related: Carvana CEO shares blunt truth about EVsRecent “macro industry developments” make near‑term risk and reward look “more balanced,” analyst Michael McGovern told clients. He pointed to a spike in oil prices and rising two‑year yields that squeeze already stretched lower and middle‑income buyers, according to CNBC. He also cited an expected hit to discretionary spending from the conflict in Iran and a surge in U.S. gasoline prices of more than 30% after military strikes began in late February.The context makes that shift more jarring. As recently as late March, BofA Securities reiterated a buy rating on Carvana with a 400 dollar target, highlighting its first‑mover advantage, almost 49% revenue growth over the prior 12 months, and profitability with diluted EPS around $8.45. Carvana is expected to become the largest independent used‑car dealer in the U.S. by volume, helped by a planned five‑for‑one stock split and ongoing gains in online car buying, according to a summary on Investing.com.  More Automotive:Hyundai admits deadly defect caused more injuries than previously knownConsumer Reports names 5 popular EVs with the best real-world rangeUber targets 50,000 robotaxis in major Rivian, Nvidia dealsNow that same firm is essentially saying the story is intact but the easy part of the stock move is over. Carvana is “not expensive anymore, but not ready yet,” wrote one Seeking Alpha contributor, who argued that EBITDA momentum has wobbled just as the valuation reset about 35% from its highs.From “zombie company” to crowded tradeTo feel what this means, I have to rewind to where this stock came from. A few years ago, Carvana was being called a “zombie company” that had never generated positive free cash flow since going public in 2017. One research firm even lumped it into a “Walking Dead” list of companies that might never earn their way out of heavy debt, said TheStreet.Then the script flipped. Carvana cut more than 4,000 jobs, stripped out over $1.1 billion in annual expenses, and rolled out software tools like its “Carli” system to automate parts of vehicle reconditioning and operations, according to analyst notes summarized by TheStreet. The company later started delivering what it called “landmark” quarters, reporting unit growth and adjusted EBITDA margins that made it, by its own telling, “the fastest growing and most profitable public automotive retailer.Wall Street followed the turnaround. Needham raised its price target to $200 and kept a buy rating after a strong quarter, while Wells Fargo jumped its target to $175 and upgraded the stock to overweight, citing accelerating unit growth, said TheStreet. Baird later pushed its target to $240 as Carvana hit new records and bankruptcy chatter faded into the background. If you bought in that phase, you weren’t just chasing a meme. You were betting on a real operating turnaround. But that success turned Carvana from a contrarian idea into a crowded trade. Carvana’s 2025 rally left the stock with a rich valuation and high expectations going into 2026, even as consensus still called for sales to grow about 31% this year and EPS forecasts to rise more than a third, according to Zacks.What changes for you in 2026This is where the story stops being about Wall Street and starts being about you. When I look at a stock like this in my own portfolio, I don’t just see a ticker and a percentage gain. I see tuition bills, a retirement timeline, and the fact that fuel and food are already taking bigger bites out of my monthly budget.Carvana’s shares are down roughly 26% so far in 2026 even after that huge rally, while the broader market has pulled back on geopolitical and rate fears, said CNBC. Carvana is down about 35% this year but still trades at a steep premium, with a price‑to‑earnings ratio around 33, according to coverage syndicated by AOL. The same piece argued that a company can keep growing while its stock spends months or years digesting an earlier surge.Here’s how I read Bank of America’s downgrade through a personal‑finance lens:Great companies can be risky stocks when macro shifts. The customers buying cars from Carvana feel the same oil and rate shock you feel at the pump and on your credit card.Carvana looks more like a high‑volatility holding than a safe core name. Position size matters more than raw conviction. A stock that can fall a third on changing expectations, not broken fundamentals, belongs in the slice of your portfolio where you can emotionally handle those swings.For me, the key emotional shift is that you’re no longer betting on whether Carvana survives. You’re betting on how it weathers a tougher 2026, with stretched consumers, rising competition in auto finance, and a market that is less forgiving of high‑multiple stories.Turning a downgrade into a useful lessonThe most valuable part of Bank of America’s move might not be its $360 target. The real value is the template it offers you for thinking about every hot name you own. Carvana’s risk‑reward looks “more balanced” now because macro conditions, competition, and valuation have all moved at once, according to CNBC’s summary.I’ve made the mistake of ignoring those shifts because the story still felt exciting. I told myself that strong revenue growth or a clever CEO quote outweighed the fact that rates were rising or that rivals were finally swinging back. Carvana sits right in that danger zone. It is still growing, still innovative, and still a leader in its niche, but it is also more expensive, more widely owned, and more exposed to everyday economic pain than it was during the early turnaround, said recent analyses from Zacks and Seeking Alpha.Bank of America flagging that new reality doesn’t have to scare you out of the stock. It should push you to rewrite your own Carvana story from “miracle comeback” to “grown‑up growth stock in a harder world.” If you can make that mental shift, you’ll be much less likely to confuse a necessary cooling‑off period with a personal investing failure, and you’ll be better positioned to protect your gains while still giving yourself room to grow as a long‑term investor.Related: Carvana CEO’s message on used-car market raises eyebrows

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TheStreet aims to feature only the best products and services. If you buy something via one of our links, we may earn a commission.Why we love this dealNothing helps us achieve that perfect state of rest and relaxation than a free afternoon, a strong UV rating, and a lounge chair for us to lie on and soak it all in. After such a dreary, frigid winter, it’s something to look forward to. Throw in a few books or magazines, a cold drink, and a slight breeze, and we think you’ve got the ultimate oasis. After all, who said you had to go on a vacation to enjoy that tether-free, restful feeling that only a good tropical trip seems to bring? With the right chair, you have a place to sit, recline, and relax all summer long — something you’ve certainly earned if you shoveled even one driveway this winter. And right now at Target, you can get that perfect, cushioned lounge chair for 71% off.The Costway Patio Chaise Lounge, which typically sells for $340, is just $100. Save yourself $240 to put towards an additional chair or find another great product to pair with it. Patterned throw pillows anyone?Costway Patio Chaise Lounge Chair, $100 (was $340) at Target

Courtesy of Target

Shop at TargetWhy do shoppers love it?We understand — $100 might still seem like a lot for one chaise lounger, but when you consider that this piece of furniture will be exposed to the elements 24/7, you’ll realize that investing in quality material is well worth the price long term. This lounge chair has a steel frame to ensure support and long-lasting durability, and it’s wrapped in a weather-resistant polyethylene wicker rattan material that won’t break, bend, crack, or become brittle with sun exposure. Plus, the rattan gives it a stylish but sleek look that pairs well with other patio furniture so it won’t look out of place among your existing pieces.Measuring 76 inches long, 24 inches wide, and 38 inches high when it’s positioned completely upright, this chair provides ample room for sitting, reclining, or sleeping. Its ergonomic design combines the function of a chair and a bed, so you can read and take in the view or score a quick snooze while you tan. The backrest has five adjustable positions so you can set it to the exact angle of your liking and still have the proper support necessary for whatever you’re doing. The backrest is also designed to perfectly fit the curve of your body while the armrests provide a place to rest your hands. The chair itself weighs about 27 pounds, but it can hold up to 400 pounds. Related: Target is selling a 3-in-1 fire table for $100 that works as a cooler and mini BBQ grillThe seat of the chair sits about 14 inches off the ground, and the armrests about 18 inches off the ground. You can sit or sleep comfortably thanks to the two-inch thick sponge cushions which are covered in a zippered red polyester fabric cover that’s removable for easy cleaning. What to expect from a $100 chaise lounge: Pros and consProsWeight-bearing: The lounge chair can hold up to 400 pounds. Built for long-term outdoor use: The lounge chair is made with a sturdy steel frame and PE wicker rattan that’s weather-resistant and built-to-last even with constant exposure to the elements. Easy-to-clean: The PE wicker rattan and removable polyester cushion covers are both easy to clean. ConsCushioning is lacking: Shoppers feel that the cushions could be a bit thicker.Assembly required: The lounge chair requires assembly, but includes detailed instructions on how to do so. Shoppers appreciate how comfortable these chairs are, and love the sturdy, high-quality look and feel that they have. Although assembly is required, detailed instructions are included and everything is labeled clearly to make the experience easy. “You won’t be disappointed,” one shopper said. “I’m not sure who loves the chair more: myself or my cat.” Shop more deals Costway 3-Piece Sectional Sofa Set, $210 (was $440) at TargetWestintrends Malibu Outdoor Folding Adirondack Chair (Set of 2), $246 (was $599) at TargetC Cattlya Solar Outdoor Pot Light With Planter, $56 (was $69) at TargetThere’s no need to spend a fortune on patio furniture, but when you want something that’s built to last like the Costway Patio Chaise Lounge, you might have to splurge a bit. To us, $100 seems like a reasonable price to get a comfortable piece of furniture to help you achieve that summer of rest and relaxation.