"Connect the Dots
The University of Michigan’s Consumer Sentiment dropped from 91.9 to 85.7 – the lowest level in a year.
Meanwhile the S&P 500 remains down, -5% year over year and -10% since July.
Coming back from Summer vacations, households saw:
- The deepest drop in 401K wealth in years
- The most prolonged drop in years
This time is very different. Household 401Ks tumbled 10% and remain down after ten weeks – deeper and longer. That’s a big break from the normal routine. Another difference is that previous market drops had identifiable causes: a government sequester, a Greek bond collapse, and so on. Not this time, and that will create a lot more anxiety and uncertainty because without a clear reason for the collapse there can be no clear remedy.
Investors are asking what’s wrong and they can’t help but notice reports of negative economic news, from a slump in payrolls to slowing factory production. From The Economist to USA Today, the media is discussing a global economic slowdown. Once it hits USA Today, Middle America is informed. Fears of a slowdown accompanied by a very real hit to household wealth will make US consumers defensive. We recently warned that consumers were very sensitive to the stock market and that it would definitely hit spending if it did not reverse quickly.