The longest and highest words ever leap in 2018, as the U.S. stock market and economy head toward a peak [Sayako Yasuda]
Profile of Sawako Yasuda
Yasuda Sawako. North America correspondent researcher at Mitsui & Co. Strategic Studies Institute. After gaining experience as a foreign exchange writer covering central bank policies and macroeconomics around the world, she moved her base to New York in 2005. While reporting on the front lines of finance and the economy on Wall Street, she also shares locally unique information from a street watcher perspective on New York real estate trends, commercial activity, urban development, and culture. Since 2011, she has launched the comprehensive information site “My Big Apple NY” and reports on the current state of America from New York.
Comprehensive Information Site:My Big Apple NY
※This article is a reprint/edit of FX攻略.com's November 2018 issue. Please note that the market information written in the main text may differ from the current market.
Household assets reach a record high, aided by a strong US stock market
Ten years since the Lehman Shock, this bull market reached its 3,453rd day on August 22, surpassing the previous record from October 1990 to March 2000. Since the S&P 500 index closed at a low of 676 on March 9, 2009, it has risen about 320%. Even with risk assets dropping due to additional tariffs under the Trump administration and the Turkish lira slump, the US stock market has maintained its advantage. The proportion of overseas sales in S&P 500 constituent companies is only about one-third, compared to around 80% for Germany's DAX, suggesting resilience to external conditions.
The strong US stock market has supported households through the wealth effect. According to the Federal Reserve, household and nonprofit net worth in Q1 2013 reached a record high of $100.7683 trillion, up 1.0% from the previous quarter, marking the first time surpassing $1 trillion. It has for 11 consecutive periods exceeded previous records since statistics began.
Contributing to the growth of household net worth were financial assets (savings, stocks, mutual funds, bonds, pensions, insurance, etc.), which rose 0.6% to $81.7452 trillion, marking the 10th consecutive increase and a new high. Financial assets accounted for 70.3% of total household wealth, remaining near the all-time high of about 71.0% since the statistics began in 2014 (Q1 2014).
Looking at the breakdown, stocks briefly fell about 10% in Q1 as concerns about accelerating US rate hikes weighed on the market, bringing the market value of equities to $29.4024 trillion (including direct and indirect holdings), down 1.5% from the previous quarter’s 5.0% increase and turning negative for the first time since Q3 2015. However, the share of stocks in financial assets stood at 36.0%, and in total assets at 25.3%, both showing only a slight decline from the previous quarter’s 36.7% and 25.9%, the highest since 2000 onward.
Despite the Trump administration’s imposition of additional tariffs on steel and aluminum and tariffs on Chinese intellectual property, the S&P 500 rose 2.9% in the April–June quarter from the previous quarter, and household assets are expected to reach new highs again, anchored by stocks. If that happens, the correlation between the S&P 500 gains since 1980 and personal consumption may reappear, raising hopes that tax cuts and the expansion of personal consumption, which accounts for about 68% of GDP, will continue to grow.
Goldman Sachs also analyzed that “the rise in US stocks added 0.6 percentage points to GDP in 2017, and two-thirds of the 1% growth came from financial market conditions (including US stocks, low interest rates, narrowing credit risk premia, and a softer dollar).”
