Economist: Fed weakens the stock market, lowers inflation, the golden age of US stocks will end | Anue Juheng – US Stocks

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Steven Blitz, chief U.S. economist at TS Lombard, reportedly said the Fed’s rate hike was communicated to weaken the stock market, as the stock market and the U.S. dollar are the main cause of the Fed’s impact on the economy and affect inflation, and also because the baby boomers are starting to exit the market. The golden age of U.S. stocks dominated by the Federal Reserve is also coming to an end.

Blitz pointed out that the current weakness in the stock market has accelerated, and economists are more convinced that consumer spending will decline in the near future, which will turn the outlook for consumer spending next year even more sluggish. As U.S. stocks are closely linked to household wealth, U.S. stocks continue to be weak, and consumers may be more vulnerable this year. Reducing spending before the bottom will help keep inflation down.

Regarding the linkage between consumer spending and the performance of the stock market, Blitz explained that since the global financial crisis in 2007-2008, the correlation between the stock market and consumer spending has become closer, and the Fed has created an asset cycle dominated by the stock market. In a “no choice” (TINA) scenario, households can only buy stocks, which now account for a higher percentage of household wealth than in the early 2000s.

Among baby boomers, the younger 55- to 59-year-old cohort has the most exposure to stocks, at 46%, while Gen Xers, 40-54-year-olds, have about 20% exposure, the report noted.

Since the economy bottomed out in the spring of 2020, the 40- to 69-year-olds group together accounted for 62% of consumer durable goods purchases. Today, pent-up demand is being met and stock prices continue to fall, hitting consumer durable goods spending.

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Falling stock prices also represent an increase in people’s cash holdings. Cash accounts for 15.4% of personal net worth among those over 70, compared with 11% for younger baby boomers. Older baby boomers will also start to rebalance their assets and increase their cash holdings, and domestic demand for U.S. stocks will decline regardless, Blitz said.


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