Skip to main content

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

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more

Sound Advice: October 12, 2022

More Pain Ahead? It’s been a difficult year for the investment markets, but tough times have happened before and they will certainly happen again.   Sometimes recoveries are relatively quick and sometimes a hefty dose of patience is required.   No two downdrafts are alike, but the net result is always a rebound to even higher levels than seen before. One of the most uncomfortable stretches over the last half century took place during the oil embargo days of the early and mid-1970s.   Market valuations fell to the high single digits, a level that was about half the historic average.   For investors, this was one of the great sales of all time.   Those who had the courage to get aboard reaped huge rewards. More recent pullbacks of note took place during the dot.com days of the turn of the millennium and the banking crisis of 2008-9.   The former period was marked by what appeared to be investors’ absolute indifference to longstanding measures of reasona...
Post a Comment
Read more