Well-off Americans expect a Fed pivot.
That’s one way to explain the widest disparity in views on the near-term outlook for US equity prices between income cohorts on record.
What I’ve just said could be wholly dubious. For one thing, “on record” isn’t even a decade. I’m referring to the mean probability that US stock prices will be higher one year from now in the New York Fed’s consumer survey. The data only goes back to June of 2013.
Additionally, it’s not possible (or, if it is, I’m not aware) to discern how much weight survey participants put on monetary policy when it comes to their responses.
In that context, the figure (below) is more “eye candy” than anything else, but I typically parse the New York Fed’s consumer survey dataset each month for notables, and in the November vintage (released on Monday), the spread between probabilities for stocks by income cohort stuck out.
The only comparable reading came in August of 2021. Note that expectations did tick higher for both the “Under 50k” and “50k to 100k” cohorts, but the four-point jump notched by the “Over 100k” group dwarfed the gains in the other income buckets.
There are, of course, any number of possible explanations (including political considerations), but it seems at least plausible to suggest that those making $100,000 per year or more are much more engaged in the daily market narrative than those in other income brackets. They’re likely to be better educated too. That raises the odds they’d be aware of the prevailing market zeitgeist which, last month, was defined by the idea that inflation had likely peaked, and thereby so had Fed hawkishness.
At his post-FOMC meeting press conference last month, Jerome Powell was successful in compelling markets to focus on a higher terminal rate (and on the idea that the Fed may hold terminal for longer than market pricing currently reflects), but a cooler-than-expected October CPI report, along with confirmation that the Fed was poised to reduce the pace of rate hikes starting at the December meeting, bolstered risk assets later in the month.
Higher-income, better-educated consumers were far more likely to be apprised of those developments than their less-educated, less-well-off counterparts across the economy. Indeed, the spread by education widened dramatically (figure below).
Just 27.5% of those with a high school diploma or less thought stock prices would be higher one year from now in November. That was the lowest on record.
The “good” news for those Americans (i.e., for those with only a high school education) is that they aren’t likely to be affected all that much in the event their relatively pessimistic view of the stock market proves accurate.
After all, the percentage of corporate equities owned by that education cohort was just 7.3% as of the second quarter. If you’re curious, that figure was almost 16% in 1990. And we wonder why they’re so vulnerable to poisonous populism.
H-Man, the smart money always leads the herd, sometimes to fame other times to folly. Somewhat similar to dogs, I have an alpha lab that is a trailblazer while the labradoodle is a cautious follower always thinking some bad will happen until the coast is clear.
Interesting…. I must admit, I’m of a very divided opinion, having felt for a while that stocks could easily go sideways for the next ten years, much like what happened after the stock-market crash of the early ’70s. And like so many, I’ve been fading this and the previous rally to raise cash. That said, I remain, for all intents and purposes fully invested, though I’ve strongly favored income over growth. As you have pointed out, H, there’s just so much uncertainty about the future.