LIVE MARKETS- Why the consumer needs a strong stock market

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WHY THE CONSUMER ALSO NEEDS A STRONG STOCK MARKET

Recent economic data has pointed to robust consumer spending but Fundstrat strategists are looking between the lines and argue that the economy, and arguably policy decisions, are more dependent than ever on strength in the stock market.

Three straight months of gains in consumer spending sounds very promising, but Fundstrat points to multiple studies showing that it is likely dependent in a very big way on a very small group.

For example they cite an Oxford Economics report from last month that pointed to the wealthiest 1% of people in the United States own 38.6% of the stock market while the top 20% own 87% of stocks. And they cited an older JPMorgan report from 2021 and a 2023 report from Visa for links between stock market gains and spending.

So the argument is that recent records in the U.S. equity market - a roughly 15% year-to-date gain in the S&P 500 and the Nasdaq's almost 19% gain so far this year - have been a driver for consumer spending, or at least for those consumers invested in stocks.

As the Fundstrat strategists say: "When your net worth is up, why not jet off to a spontaneous weekend getaway, or treat yourself to a fancy new bauble?"

On the flip side, they point to research from the Federal Reserve of Kansas City showing that stock-market declines can hurt consumer confidence and therefore, spending.

They also refer to recent University of Michigan sentiment data which shows a slight dip in sentiment for September with “a key exception: sentiment for consumers with larger stock holdings held steady in September,” in contrast to people who have “smaller or no holdings.”

So Fundstrat argues that the consumer, and the economy as a whole "might well have become even more dependent on the stock market performing well enough to keep wealthy Americans in a spending mood."

If the White House is aware of this, the strategists suggest that it’s reasonable to assume that the so-called Trump Put is back in play.

This could mean that "as long as consumer spending (and thus, the U.S. economy) is being driven by a demographic that links sentiment to the stock market, the administration will be motivated to prevent any major declines in the markets."

While they don't answer their question about whether the dynamic is good for the American people, they do suggest that investors should keep the information in mind.

(Sinéad Carew)

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(Terence Gabriel)

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