Recent data suggests Americans are saving less and taking on more debt as a result of surging inflation. According to the Bureau of Economic Analysis, the US savings rate has fallen from 20% in January 2021 to 3.4% last month. Credit card balances have increased $61 billion to $986 billion in the fourth quarter of 2022, according to data from the New York Fed.
SoFi's head of investment strategy Liz Young warns that the stock market is not pricing in the risk of consumers running out of cash. She believes that lower savings and higher debt levels will weigh on stocks, as Americans have less cash to spend on goods and services, forcing companies to slash their earnings targets.
These warnings contrast with more bullish analysts like Fundstrat's Tom Lee and veteran economist Ed Yardeni, who are more optimistic about the stock market's prospects. Despite these warnings, the benchmark S&P 500 is up 6.5% and the tech-heavy Nasdaq Composite has jumped 13.3% this year. Young believes the rally has been "rate-driven" and investors should be more worried about consumer spending.