Consumer spending in the U.S. is expected to receive a boost as a result of the recent stock market rally and higher house prices, according to Capital Economics. The London-based research firm predicts that the continued surge in the stock market will drive household net wealth to a record high and provide a tailwind to consumption growth. American household stock holdings increased by $7 trillion in the first quarter, while total household net wealth climbed $8.5 trillion, including the value of homes. Capital Economics forecasts that household wealth will advance another $20 trillion by the end of 2025 as house prices continue to rise.
The additional wealth held by households is likely to result in increased consumer spending, though the firm does not expect a sudden boom. Instead, they anticipate a gradual acceleration in consumption growth over the next few years. This outlook aligns with the notion that rising household wealth tends to underpin economic growth and stability, rather than leading to drastic shifts in spending patterns.
In other news, the upcoming jobs report is expected to reveal strong job gains in March. Economists predict that employers added 200,000 jobs last month, indicating a slowdown compared to February’s addition of 275,000 jobs. However, investors will closely examine the report for revisions to previous payrolls data, as well as wage growth. Average hourly earnings are anticipated to have increased by 0.3% in March, a slight improvement from February’s 0.1% jump. These indicators will provide insights into the health of the labor market and may influence the decisions of the Federal Reserve and investors.
Despite some fluctuations in sentiment, overall investor optimism remains above average for the 22nd consecutive week, according to the American Association of Individual Investors. Bullishness fell slightly from last week but remains higher than the historical average, while bearishness stayed below the historical average for the same period. These sentiment indicators suggest that market participants are still generally positive regarding the outlook for stock prices, though caution should be exercised when extremes are reached, as they may indicate a reversal in sentiment.
In terms of market performance, the three major indexes, namely the Dow, S&P 500, and Nasdaq Composite, are on track for notable weekly drops. The Dow has lost approximately 3%, making it the worst week since March 2023. The S&P 500 and Nasdaq Composite have each slipped around 2%. This decline reflects the volatility and uncertainty in the current market environment.
Despite this, Dow futures traded slightly above flat, indicating a mixed sentiment among investors. While market performance may have been impacted by various factors including economic indicators, geopolitical tensions, and global events, it is important for investors to stay informed and analyze trends to make well-informed decisions.
