According to JPMorgan, American consumers have spent all of their excess savings from the pandemic.
The bank highlighted consumer weakness as one of the reasons stocks are poised to continue lower.
“Even with a strong job market, US companies are seeing declining demand and prices as margin pressures persist.”
The weak consumer is one reason the stock market is willing to continue its decline, according to him JPMorgan Marko Kolanovic.
In a note on Thursday, he said consumers have spent the entirety of their excess savings from the pandemic, which at one point amounted to more than $2 trillion. This tailwind is now over, according to the bank, and consumer spending could ease further With student loan payments being repaid in October.
“Our estimate of the excess savings of American households when adjusting for inflation has now been fully depleted from the 2021 high of $2.1 trillion, with the risk of a widening imbalance if expenditures accelerate,” Kolanovic said.
And while there remains high levels of household liquidity across monetary assets, estimated at $1.4 trillion when adjusted for inflation, that too is at risk of being completely depleted by May 2024, he estimated.
“Our concern is whether excess liquidity will support even above-trend consumption for an extended period,” Kolanovic said. “We continue to believe that lower-income groups are increasingly under pressure with lower compensation and little indication of mitigating the higher cost of the capital environment.”
a Soften the consumer It is just one reason to remain cautious about the stock market amid its 5% decline, according to the note. Other areas of concern include deteriorating profit margins, High interest ratesand lower incentives for stock repurchase programs.
“The 2024 Consensus EPS growth rate of 12% is a significant hurdle for an obsolete business cycle with very restrictive monetary policy, an ever-increasing cost of capital, very easy fiscal policy, eroding consumer savings and household liquidity, low unemployment and increasing risks from recession for some of the largest economies.” coming.”
Kolanowicz highlighted China and Germany countries at risk of imminent recession, The bank still expects the US to enter a recession sometime in early 2024.
Meanwhile, margins should remain under pressure “given the delayed effects of monetary policy on demand” as more and more companies use promotions and incentives to stimulate demand.
“This erosion of pricing power along with increased labor costs and increased interest expense should continue to pressure margins,” Kolanovic said.
Another headwind for the stock market, he added, is the fact that wealthy valuations make buybacks less attractive to companies when they are debt-financed. That, along with the new buyback tax, should mean less stock price support via buyback programs.
Kolanović eventually expects it to be Standard & Poor’s 500 To end the year at 4,200, which is a potential downside of about 4% from current levels.
Read the original article at Business interested