Tech stocks got hit with a one-two punch on Wednesday, and they’re still reeling. Higher-than-expected U.S. inflation last month and credit jitters over financially weak companies in the AI chain, particularly CoreWeave, were the immediate culprits. But weakness had been building for days, with a key semiconductor index now down nearly 12% in six sessions. Follow our live markets data and coverage.

You’ve probably been hearing about America’s “K-shaped economy,” the pattern of well-off people spending freely while poorer ones’ prospects head in the opposite direction.

The top of the “K” is looking a bit droopy these days with a subset of the middle class trading down or cutting back on goods and services. Evidence, for now, is mostly coming from the private sector, not government data such as unemployment.

Economic angst might not be good for the stock market overall, but investors who get ahead of the trend can dull the blow.

Jim Paulsen, who’s seen a few cycles over his four-plus decades in the investment business, says part of what’s happening amid high inflation and moribund jobs growth seems familiar. Lower-income people always get hit hard and early, but he says the effect “might be reaching higher into the income distribution than in the past.”One reason is that there are haves and have-nots even among the solidly middle class.

Many rely more on wealth—their homes or record stock portfolios—and feel secure. Others spend more on the basis of salary income. The latter are probably still employed, but they’re less confident about staying that way or hopping to a higher-paying role.

Now retired, Paulsen publishes a Substack newsletter in which he revived an early warning indicator he’s used successfully as an economic signal in the past: the Walmart Recession Signal. Tweaked over the years, it’s simply been the ratio of Walmart shares to a basket of retailers and more-recently the Global Luxury Index. Walmart is doing well relative to that cohort, and it isn’t alone.

Chuck Grom, a retail analyst at Gordon Haskett, says even some middle to upper-middle class people “are acting like low income shoppers lately.”He points to new faces visiting Dollar General, which caters to a less-affluent clientele than Walmart. Its small format and convenient locations are appealing when people balk at high gas prices.

Others that could benefit from middle class caution are warehouse clubs such as BJs and Costco as well as off-price retailers like Ross Stores, Burlington and TJ Maxx. Auto parts retailers such as AutoZone and O’Reilly’s could also gain as people avoid costly dealer maintenance.

The split can be seen among affordable restaurant chains too. Olive Garden parent Darden, with mostly older diners, is holding steady. Fast-casual chains such as Chipotle, Sweetgreen and Cava, a cut above fast food and more likely to serve young, white-collar diners, aren’t. That cohort is more affected by job anxiety and boosted less by home equity and big 401(k) balances.

Another sign of stress: Shares of pawnshops EZCORP and FirstCash Holdings shares are up sharply year-to-date.

The signs are well short of recessionary levels, but that seems to hinge on middle-class consumers’ net worth. “Thank goodness the equity market and most housing markets have cooperated,” says Grom.

CoreWeave: Shares in the cloud-computing company, which has financed its data-center build-outs with huge amounts of debt, fell 5% in premarket trading. AI jitters sent CoreWeave stock tumbling 15% yesterday.

TSMC: The world’s largest contract chip maker posted another record profit, yet its American depositary receipts fell almost 2% as part of a broader AI selloff. Stock in rival Samsung also fell 9% in Seoul.

Rocket Lab: Shares in the aerospace firm slumped 9% ahead of the opening bell after it delayed the maiden launch of its Neutron rocket from this year to 2027.

UBS: Switzerland’s last remaining flagship global bank is preparing to abandon its home base should Swiss lawmakers proceed with tougher capital requirements, The Wall Street Journal reported. UBS’s U.S.-listed shares gained over 1% premarket, while its Swiss shares edged up.

Ericsson: Shares in the telecom equipment maker surged 9% in Stockholm after Ericsson reported strong growth in sales of network gear.

Rising rates can be a good environment for big banks, and they were until recently. Now they’re causing serious problems.

On this day in 1962, Soviet nuclear capable missiles were photographed in Cuba, triggering the 13-day Cuban Missile Crisis. Stocks fell, but trader Art Cashin, then a rookie, was correctly advised to buy stocks by an older colleague. “Cause if you’re wrong, the trade will never clear. We’ll all be dead.”One rule Bank of America strategist Michael Hartnett has is to recommend selling global equities when fund managers’ average cash levels drop below 4%. They’re now at 3.9%. He offers the same recommendation when BofA’s Bull & Bear Indicator, a composite measure, rises above 8. It’s now at 8.1.

Yesterday’s newsletter correctly stated that both had exceeded his thresholds but misstated what they were.

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Business and finance have fascinated me for a long time. Before writing this newsletter, I edited The Wall Street Journal’s Heard on the Street team for a decade, wrote two investment books and managed a team of stock analysts at a global investment bank.

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