Updates on the Consumer...
As a follow-on to our recent 2023 Market Commentary for the third quarter we wanted to share a few updates on the state of the US consumer. TransUnion recently released their "Consumer Pulse Study" for the 4th quarter of 2023 and the results were mixed. Here are three takeaways from the report:
1) While financial optimism was fairly high among Millennials (71% reported feeling optimistic over the next 12 months), Baby Boomers were the lowest on the generational scale with only 44% reporting that they felt optimistic over the next 12 months.
2) 65% of consumers with a student loan were caught off guard when the US Department of Education announced that loan payments would begin in October 2023. Of those consumers, 58% indicated they would make their monthly payments in full, 30% planned to make a partial payment each month, meaning that 12% did not plan to make any monthly payments towards their loans! 55% of the payments are more than $400/month and 22% are more than $800/month.
3) In order to cover this additional expense, 33% planned to reduce discretionary spending or use savings, 28% said they would get a second job or do part-time work, 25% said they would use money from retirement savings (hardship withdrawals which we touched on in our commentary), 21% would increase their credit card balances (with interest rates at all-time highs on credit card balances), and 19% said they would either borrow from family or friends or delay key life events, such as the cost of a wedding or purchasing a home.
More Equity Market Divergences...
Through November 1st, the Equal Weight S&P 500 is now negative on the year, down -2.18%. The market cap weighted S&P 500 is up 11.76%, although over the past 3 months the index is down -7%.
While markets are cheerleading the Fed's decision to not raise interest rates, there are a whole host of factors that we feel could keep inflation persistently high, which may lead the Fed to have to raise rates more at later meetings.
As always, please feel free to reach out with questions or comments.
All the Best,
Gordon Asset Management, LLC Investment Policy Committee