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Confidence abounds

Confidence abounds

So much confidence that it's bringing flashbacks of the roaring '21-'22s

Moses Sternstein's avatar
Moses Sternstein
Dec 09, 2024
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Random Walk
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Confidence abounds
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  • consumer discretion to the wind

  • exiting the labor force stage right

  • retirements unbound?

  • in all events, rates aren’t going much lower, anytime soon


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Confidence abounds

There’s little doubt that people—investors, consumers, businesses—are feeling pretty confident, right now.

Whether it’s stock prices running away from earnings growth, or consumers shopping their hearts out over the holidays, the signal is very much “risk on.”

Discretion to the wind

I mean, people are either feeling really cheerful this holiday season or everyone won the lottery:

BofA

Discretionary spending is rapidly reaccelerating nationwide.

So, people are feeling good. Whether that confidence is misplaced, Random Walk, of course doesn’t know.

My inclination is to be somewhat skeptical of investor confidence, but to be more deferential to consumer confidence.1 The reason is pretty simple. I trust that people have a solid grasp of their financial situation, for no other reason than it effects them directly, and therefore they’re plenty motivated to get their intel right. Plus, if recent history is any guide, people have consistently lived within their means, with very little evidence of runaway borrowing or anything that would resemble reckless spending.2

While investors might get caught up in a momentum trade, consumers don’t really buy extra knick-knacks because someone else might buy extra knick-knacks driving the price of knick-knacks up (to the benefit of the knick-knack holders).

Now, do people perhaps have a bit of a gambling habit, i.e. yoloing risk-assets when times are good? Yes, sure. Retail inflows to the stock market are pretty high, as well.

But, if consumers are just buying more stuff, I trust that they can afford it.

Exit the labor force, stage right

Where maybe it gets a little more complicated is when high asset-prices form the basis for consumer confidence in their financial situation.

I’m thinking especially about retirees or really prospective retirees who may or may not feel the impetus to keep working, depending on how swole the old 401k looks.

Take this interesting observation about leaving the workforce from the Minneapolis Fed:

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