Broker Check

Consumers Driving the American Economy

| September 16, 2019

The market rallied last month because of strong financial results from retailers, with Target, Walmart, and Lowe’s leading the pack. Interestingly, the consumer discretionary sector, which sells goods and services the public doesn’t necessarily need, performed quite well.

In other words, consumers are thriving.

A good example of the sector’s performance came last month (Aug. 21, 2019), when the Dow Jones Industrial Average went up 270 points, the S&P 500 increased 0.8 percent, and the NASDAQ jumped 0.9 percent. Lowes results, which shot the stock price up 10 percent, and the previous week’s Walmart earnings drove the increases. Plus, Target shares jumped 16 percent because of a 3.4 percent increase in annual same-store sales.

These better-than-expected results come when television personalities, traders, and economists are (loudly) worried about a slowdown. But economic data, and this chart, show the consumer is making more money and spending more of it.

Conventional thinking says if the U.S. consumer is doing well, the economy will be in good shape. That seems to be the case now.

Low unemployment and rising wages have stuffed consumer wallets. Clearly, that money is being pumped back into the economy. Even in the face of an inverted yield curve, what’s kept the market and the economy going is the consumer.

Look at that chart again – it’s incredible. In 2009, things were dire. Discretionary stocks were down, and consumer defaults were high. Today, the inverse is true, and the spread is big, which means good things for the entire economy.

Securities sold through CoreCap Investments, Inc., a registered broker-dealer and member FINRA/SIPC; advisory services offered by CoreCap Advisors, Inc., a registered investment advisor. Cornerstone Financial and CoreCap are separate and unaffiliated entities.