Consumer saving is up, way up. But whether investors put this money into the markets may have more to do with how much wealth is already in play.
----- Transcript -----
Welcome to Thoughts on the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley. Along with my colleagues, bringing you a variety of perspectives, I'll be talking about trends across the global investment landscape and how we put those ideas together. It's Friday, October 15th at 2:00 p.m. in London.
Over the course of the pandemic, strong government support and some of the difficulties of spending money as usual, led to a large surge in consumer savings. This was a global trend, seen from the U.S. to Europe to China. For markets, one of the most bullish arguments out there is that these savings can still come into the market. In sports terms, there's cash sitting on the sidelines waiting to come into the game.
But we think this story is more complicated. Yes, there are a lot of savings out there by almost every measure that we look at. But to continue with the analogy, while investors may have cash sitting on the sidelines, they also have a lot of wealth already on the field.
To put some numbers around this, the amount of cash currently held in US Money Market funds is about 20% of gross domestic product relative to a 30-year average of 15%. But total household wealth, that is the value of all the homes, stocks, bonds, businesses and stamp collections, is now about 590% of GDP, 170pp higher than its average over that same 30-year period. So, yes, overall Americans are holding more cash than normal, but they also have more, a lot more, of everything else.
Meanwhile, that everything else is riskier. Stocks, which generally represent the most volatile asset that most households hold has been a growing share of this overall wealth. U.S. households now hold more stocks relative to their other assets than at any time in history. It's possible that people decide to put more money into the market, but many may decide that they already have a reasonable amount of exposure as it is.
Indeed, this echoes the comments of someone with real world insights into this dynamic: Lisa Shalett, Chief Investment Officer for Morgan Stanley Wealth Management. Recently on this podcast, Lisa mentioned similar dynamics within the over $4T of assets managed by Morgan Stanley's Wealth Management Group - cash holdings were still ample, but exposure to the equity market for investors was historically high, as market gains have boosted the value of these stock holdings.
For investors, we think this has two important implications.
First, we think the figures above suggest that many investors actually do have quite a bit of exposure to the market already relative to history. That exposure could rise But while it's always more fun to imagine a market that has to rise because everybody needs to be more invested, we just don't think that that is what the household data really suggests.
Second, that high exposure means that fundamentals, rather than more risk taking, may be more important to getting the market to move higher. Strong earnings growth has been an under-appreciated boost to markets this year and will be important for further strength. Third quarter earnings season, which is now beginning, will be an especially important element to watch around the world.
Thanks for listening. Subscribe to Thoughts on the Market on Apple Podcasts or wherever you listen and leave us a review. We'd love to hear from you.
US Economy: What Generative AI Means for the Labor Market
Michael Zezas: What the New U.S. Speaker Means for Markets
U.S. Housing: The Impact of High Mortgage Rates
Mike Wilson: 2023 Stock Market Comes Full Circle
Andrew Sheets: Optimism in Corporate Credit
Asia Equities: China’s Risk of a Debt Deflation Loop
Vishy Tirupattur: Implications of the Treasury Market Selloff
Matthew Hornbach: The Impact of Policy on Bond Markets
Mike Wilson: Are Earnings Expectations Too High?
Ellen Zentner: The Rise of the SHEconomy
Global Autos: Automotive’s Smartphone Moment
Michael Zezas: The Impact of Geopolitical Tension
Global Tech: Generative AI and Asset Management
Seth Carpenter: Are Higher Rates Permanent?
Vishy Tirupattur: Treasury Yields Move Higher
Chetan Ahya: What Would Trigger Rate Hikes in Asia?
Michael Zezas: Signals from the Speaker of the House Vacancy
Keith Weiss: How Generative AI Could Affect Jobs
Michelle Weaver: The Priorities of the U.S. Consumer
U.S Equities: Credit Continues to Outperform
Create your
podcast in
minutes
It is Free
The Commercial Edge: Unleash the Power of People
The emPOWERed Half Hour
The Indicator from Planet Money
Now, What’s Next?
Access and Opportunity
At Scale: A Sustainability Podcast