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Sound Advice: March 3, 2021

Ka-Ching 

Ka-Ching was the sound made by old-fashioned, mechanical cash registers before electronic terminals took over.  These days, it’s a term used to refer to lots of money.

For investors, the critical question is what lies ahead for the stock market, not in the next few weeks, but in the next few months or years.  That depends on where the economy is headed.  Over extended periods, the path is upward, though there is always slippage along the way, sometimes relatively minor and at other times quite nerve-wracking.

The driving force behind the economy is consumer spending, which typically accounts for about 70% of the U.S. Gross Domestic Product.  Consumer spending peaked at $13.4 trillion in the fourth quarter of 2019, plunged to $11.9 trillion two quarters later, then rebounded to $13.0 trillion in the most recent quarter.

What lies ahead?  A further rebound.

During the closing months of 2020, consumers started to loosen their purse strings, but there’s a long way to go.  Data provided by the Economics Research Division of the Federal Reserve Bank of St. Louis tell the story.  From January, 1959 to last December, a span of six decades, the average personal savings rate was 8.9%.  More recently, from 1995 to present, that average dropped to 6.5%. 

The numbers tell the story.

Last April, just after the start of the pandemic, the personal savings rate skyrocketed to 33.7% from 7.2% in December, just four months earlier.  Then, as consumers began to calm down, consumer confidence rebounded a bit and so did consumer spending.  Even so, there is a long way to go.

As of December, the personal savings rate stood at 13.7%, which was 50% above the 60-year average and double the 25-year average.  There’s a lot of money waiting to be spent.

Where will it be spent?  Restaurants, travel, entertainment, and travel, to name a few.  Things like the prospect of rising interest rates may provide a headwind to the stock market, but the likelihood of freer spending consumers will be a powerful offset.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

 

www.soundasset.com

www.soundasset.blogspot.com


Any questions?  Please contact me at nrwayne@soundasset.com

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