The Cornerstone of America’s Economy? Consumers Like You

by Andrew Zatlin

Earlier this week, I forecasted double-digit growth for stock-market investors.

And I revealed three reasons why I’m convinced this growth will happen…

Including a deep dive into reason No. 1.

Ready for more? Let’s continue…

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

The Cornerstone of America’s Economy? Consumers Like You

Today, we’re going back to the fundamentals.

No, I don’t mean the basics on things like how to invest in a company or how the stock market works. I’m referring to the economic fundamentals — the basic principles that drive our economy forward.

Why a focus on these? Because as you’ll learn, the fundamentals reveal a strong economy. And it’s another reason why 2024 will be “The Year of the Bull.”

Companies and Consumers

For as complicated as the economic landscape seems, the strength of the U.S. economy really boils down to two players: companies and consumers.

Let’s start by looking at companies. Around this time last year, recession fears were real. Companies were conducting mass layoffs, and they weren’t buying a lot of inventory. Basically, they were re-aligning themselves in a post-COVID world, and the situation appeared to be bleak.

But this downsizing was actually companies’ attempts to get lean and mean — to ensure that their businesses could one day reach profitability again. And guess what? For the most part, companies succeeded. Let me show you…

A Profitable Year

 

This chart shows corporate profits of companies that directly affect the U.S. economy (for example, there are no banks included here, because their hiring levels don’t really impact the economy. And there are no international companies, either).

If you notice the mini spike in 2023, that indicates that company profits went up about 10% year-over-year.

On its own, that 10% figure doesn’t mean a whole lot. But look at the rest of the chart. That 10% growth is close to what companies strive for. And often, it’s better than what they actually achieve.

Companies achieved this growth in the second half of last year. And they expect this growth to continue in 2024. What will that mean? Simple: more hiring, more investment, and, presumably, more stock-market growth.

Doing More With... Not Much More

It’s one thing for companies to hope for greater profits. But it’s another for them to expect them. And the latter is what we’re seeing to start this year.

Looking at some of the data, this expectation makes sense. After all, there are companies whose profits are up 40% since the start of 2020. Yet hiring is only up about 4% during that time. That means companies are increasing profits without taking on too many added expenses of more staff.

Furthermore, deflation is coming to their aid. Gas prices are falling. So are prices for shipping, materials, and labor. This will give companies even more room to grow and expand. And that will lead to a booming stock market.

Now let’s examine the other economic player…

The Cornerstone of the Economy

I’m referring to consumers like you.

Not to toot your horn too loudly, but you’re the cornerstone of the economy. And for the most part, consumers today are feeling good.

Sure, interest rates remain high. But that only matters if you’re going to buy a car or a house. Otherwise, the other components of inflation have cooled off. Some have even turned negative.

This means that the money you spend will go further than it did a year ago. And these days, perhaps surprisingly, consumers have more disposable income than before. Let me show you:

This chart shows a measure of household debt as a share of a person’s disposable income.

Today, debt levels are below where we were pre-COVID. That means consumers have more disposable income and are in a better position to spend — perhaps even take on credit-card debt, if necessary. All of that is good for the economy.

Get Out There and Spend

Whether you’re a company or a consumer, you’ll be spending money in 2024. And that’s great news for both the economy and the stock market.

We’re in it to win it. Zatlin out.

In it to win it,

Moneyball Economics