This is our third post on the theme and will be the last until next year.
Just something to tuck into the reptile brain for a possible (though highly improbable) 2026 - 2028 survival mode/lifeboat ethics scenario.
From Yahoo Finance, October 19:
The economy’s biggest risk may not be tariffs or private credit but the stock market itself, where roughly $9 trillion in equity gains over the past year have powered high-income spending that could quickly reverse if portfolios start flashing red instead of green.
“The surge in stock prices is so key to the well-to-do who are driving consumer spending,” Mark Zandi, Moody’s Analytics chief economist, told Yahoo Finance on Friday. “If that gets turned into reverse and we see stock prices decline, then that’s the real threat to the economy in my mind.”
Moody’s estimates the top 10% of earners account for about half of all consumer spending, a dynamic that’s kept growth steady even as inflation and tariffs bite lower-income households. That link between spending power and market performance has become increasingly evident amid fresh market swings.
US stocks rose on Friday as President Trump eased fears of a further trade escalation with China, rebounding from Thursday’s steep losses sparked by renewed worries over private credit. Regional banks, including Zions (ZION) and Western Alliance (WAL), also recovered after reports of fraudulent loans and mounting credit stress added to investor jitters against the backdrop of a prolonged government shutdown.
Still, Zandi said those risks pale next to what’s building in financial markets, where a sharp reversal could quickly shake the confidence of the wealthy households powering US growth.
“Of all the risks out there, from what’s going on in the banking system to the government shutdown and everything else, that’s the one that’s at the top of my list of worries,” he said.
“I’m more sanguine about the banking system,” he added. “I’m less sanguine about financial markets. Valuations are high. ...Everything feels a bit juiced, overvalued, bordering on frothy.”
Zandi warned that froth is directly tied to the same high-income households driving US consumption. That means if market gains unwind, the very group propping up spending could quickly pull back.
'Bifurcation of the consumer'
Deborah Weinswig, founder and CEO of Coresight Research, which tracks global retail and consumer trends, said the split between high- and low-income households is at its highest level since January 2020.“The high-end consumer right now is still very strong and stronger than we would have even expected,” Weinswig said, noting spending among wealthier shoppers has continued to rise through the fall.
At the same time, lower-income households are stretching their budgets by visiting more stores per trip, about five or six now versus three before the pandemic, as they hunt for bargains and stack promotions.
“We continue to see this middle [consumer] being really squeezed,” she said, pointing to discount and luxury retailers as the clear winners. “Those value-oriented retailers on the bottom and those true luxury brands on the top — that’s where we continue to see a lot of strength.”
Weinswig said the retailers that stand to gain the most in this environment include Walmart (WMT), which continues to attract higher-income shoppers, along with the warehouse clubs like Costco (COST), BJ’s (BJ), and Sam’s Club, which she said have the strongest community ties and most sophisticated consumer data.
TJX Companies (TJX), Ross Stores (ROST), and Burlington (BURL) also stand out as shoppers trade down and hunt for bargains.
"We're going to start to see not only bifurcation of the consumer, but also in some of these stocks," she added, predicting sharper performance gaps ahead between retailers that can adapt and those that can’t....
....MUCH MORE
Previously:
"The stockmarket is fuelling America’s economy"
Reprising the introduction to September 19's "The top 10% of Americans account for nearly half of consumer spending":
...seeing this story's headline, my first thoughts were "Single point of failure/point of maximum leverage; attack the source of that money (and urge to splurge)—asset markets— and recession/depression is guaranteed".
It's all in how you look at the world.From The Economist....
See also, if interested December 2019's (got lucky on the timing):
"Zvi Bodie and the Keynes’ Paradox of Thrift"
