Feeling Good vs. Looking Good
The stock market is up more than 10% this year. Unemployment is low, and compensation levels are rising. Sounds awesome right? Everyone should feel great about the economy and their personal finances. According to the Federal Reserve Survey of Household Economics and Decision-making, that may be true for personal finances, but nothing could be further for the truth about the broader economy. The numbers are startling. 73% of people feel good about their own personal finances, but only 18% feel good about the economy. For context, the personal finance numbers generally sit in the 70-80% range. The national economic numbers, however, were close to 50% as recently as 2018.
Let’s tackle the stock market first. The stock market (as measured by the S&P 500) is up approximately 10% as of this writing and all of that increase was generated by 7-8 household name technology stocks (Nvidia, Meta, Microsoft, Apple....you get the idea). While the ownership in those stocks is very broad among investors of all types, the success of those companies does very little to make a person feel good about the US economy.
One of the great ironies of this narrow leadership of course is that several of these technology leaders have been laying off staff by the tens of thousands in 2023.
The obvious follow-on questions are: Why are these players performing so well? And how will consumers deal with this mismatch in personal and national finances? The first question sadly is the easier of the two. When the economy slows, growth investors have fewer places to go. In several cases, the top 7-8 companies have told us that growth is slowing and so they are laying off people to keep profits high. Companies outside of that list are struggling to grow and so investors narrow their focus to the few that still are, even at a lower rate. The combination of earnings growth and consolidation of ownership makes these companies stick out.
What will consumers do? That’s much more difficult to answer. For the time being, they continue to spend, relatively undeterred by higher rates and persistent inflation. But the more time passes, and the less good they feel about the economy, the less they will spend, and finally some of these numbers the Fed uses to determine Fed Funds will finally roll over. We believe this has started with bigger ticket items surrounding the home and autos, but as student loan payments restart in coming months, we expect spending to slow further.
Sources: Axios, The Wall Street Journal
