Stock Markets Follow Consumer Spending
- Stock markets are ultimately tied to corporate profits and thus consumer spending.
- When consumer spending declines, profits and markets follow.
- Interest rates also affect markets through impacts on spending.
- Understanding consumer spending helps predict market booms and busts.
- Falling spending means falling markets.
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The book Ahead of the Curve by Joseph Ellis discusses improving economic forecasting by using the right indicators and tracking year-over-year data instead of short-term fluctuations. It argues that recession definitions are overrated, and that slowing growth is more damaging than commonly realized. The book advocates focusing on consumer spending as the main economic driver, and provides guidance on relating indicators like incomes, interest rates and stock markets to spending. It aims to help readers make better forecasts for economies, industries and companies.
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Consumer Spending Is The Main Driver Of The Economy
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The Fed rate is also tied to inflation, which impacts earnings, which affects consumer spending. Inflation also moves hourly wages and direct interest rates. This can create the impression that interest rates and consumer spending are more closely related than they are.
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