With all the recent headlines surrounding the current state of the market, we are taking a deeper dive into key factors that we believe investors should keep an eye on, such as:
- U.S. retail sales during the holiday
- American household savings
- Inflation and unemployment
The U.S. Consumer May be Stretched But is Still out Shopping – According to figures released by the Commerce Department last week, U.S. retail sales rose by a seasonally adjusted 1.3% in October, signaling a sharp increase in activity from September’s print. Shoppers spent more on everything from everyday staples like gas and food, but also more on bigger ticket discretionary items, like cars and furniture. Retailers are trying to keep the momentum going by discounting many items ahead of the Black Friday and Cyber Monday periods, as well stocked stores offer a departure from previous years. The retail sales report does not include spending on services like travel and hospitality, so investors wanting a fuller picture of the health of the U.S. consumer should wait for the report covering goods and services due at the end of November.1
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Explore the Do’s and Don’ts of Stock Market Volatility
Every investor understands the dread and anxiety of watching their investments take a turn when the market is red.
It is impossible to avoid volatility, but there are ways you can minimize the worst impacts of a volatile market. In our newest guide, ‘The Do’s and Don’ts of Stock Market Volatility’ we provide recommendations for investors, based on 30 years of expertise. We also explore:
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Are Households Starting to Tap Out? American households stockpiled savings at a record rate in the year following the pandemic. The stockpile is starting to shrink – according to government data, somewhere between $1.2 and $1.8 trillion in savings remain, which is a far cry from the near $6 trillion level reached in the months following the pandemic when the first stimulus checks started to arrive. Many economists expect what’s left of savings to run out possibly in nine to twelve months. Households have been saving less and tapping into reserves to meet the inflation moment. In 2020, the household savings rate was 8.8% as households had fewer opportunities to spend, but the rate has since fallen to 11.8% in 2021 and down to 3.1% now – the lowest level since the 2008 Global Financial Crisis.3
To make up for some of the shortfalls, households have been picking up more debt, a trend worth watching. According to the Federal Reserve Bank of New York, credit-card balances have risen by 15% year-over-year in Q3 2022, which is the fastest pace of increase in 20+ years. The percentage of credit card balances more than 30 days past due also rose. This inflation-induced stress on households could be made worse if the labor market starts to loosen and more layoffs appear.
What Do Americans Dislike More, Inflation or Unemployment? Such is the question of the so-termed “Misery Index,” which for 50 years has been a napkin math barometer for how Americans felt about the economy. The origins of the Misery Index go back to an economist in President Lyndon Johnson’s White House, named Arthur Okun. His formula for the Misery Index was simple: just add the unemployment rate with the inflation rate and you have the metric. But more recently, economists have begun to rethink the one-for-one relationship between unemployment and inflation, i.e., the fact that Americans may not loathe them equally. As it turns out based on polling and surveys, Americans dislike unemployment more than they do inflation, such that a 1% increase in unemployment is about as undesirable as a 2% change in inflation. Sentiment surveys clearly show that many are unhappy with the state of the economy, just not as unhappy as previously thought given the ongoing strength in the labor market.5
Overcoming Market Volatility – Some investors tend to panic and sell out of the market when volatility takes the wrong turn.
It is impossible to avoid volatility, but there are ways you can minimize the worst impacts of a volatile market. In our newest guide, ‘The Do’s and Don’ts of Stock Market Volatility’ we provide recommendations for investors, based on 30 years of expertise. We also explore:
- 3 best practices to successfully manage periods of market volatility
- 3 most common mistakes investors make, and why they are so damaging to your long-term investing goals
- Historical data that supports our conclusions and underscores the recommendations we propose
If you have $500,000 or more to invest, get our free guide today!
Disclosure
1 Wall Street Journal. August 23, 2022. https://www.wsj.com/articles/some-of-the-best-holiday-gift-deals-are-popping-up-before-labor-day-11661212669?mod=article_inline
2 Zacks Investment Management reserves the right to amend the terms or rescind our free The Do’s and Don’ts of Stock Market Volatility offer at any time and for any reason at its discretion.
3 Wall Street Journal. November 20, 2022. https://www.wsj.com/articles/as-savings-slowly-shrink-consumer-spending-is-on-borrowed-time-11668956403?mod=djemRTE_h
4 Fred Economic Data. October 28, 2022. https://fred.stlouisfed.org/series/PMSAVE#
5 Wall Street Journal. November 18, 2022. https://www.wsj.com/articles/inflation-and-unemployment-both-make-you-miserable-but-maybe-not-equally-11668744274?mod=djemRTE_h
6 Zacks Investment Management reserves the right to amend the terms or rescind our free The Do’s and Don’ts of Stock Market Volatility offer at any time and for any reason at its discretion.
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