Categories: Market Overview

Americans are cutting savings as they did before markets crashed in 2000, 2008

Americans increased spending (+1.1%) faster than income (+0.6%) in June. Both figures exceeded expectations, which is a bullish signal for the markets and the dollar as it shows buying is in good shape.

But this may only be a good façade, which hides the difficulties. Last month Americans put away $944bn (on an annualised basis), which is the lowest in nominal terms since December 2016. The savings-to-income ratio fell to 5.1%, the weakest since August 2009.

The ratio was sustainably below 5% during the final stages of the economic boom: in 2000-2001 and 2005-2008. Both episodes were harbingers of disaster for the stock market and took place during periods of rapid monetary policy tightening by the Fed.

The fundamental reason for the weakness in equities during this period is the relatively high market valuation (P/E), as is the case now. Consumers cannot increase spending further, which harms corporate profits and forecasts and ends in staff cuts.

Comments from the Fed or the Treasury, led by past Fed chief Yellen, make us look at the current picture, which is quickly becoming obsolete. Further, the economy may have no engine left for growth in the form of consumer spending while the housing market is already throttling.

The FxPro Analyst Team

The FxPro Analyst Team

Our team consists of financial market experts. Our dedicated professionals prepare reviews on the foreign exchange market situation, Crude Oil, Gold and Stock Indices. All the analysts are regularly published in the world leading economic media.

Share
Published by
The FxPro Analyst Team
Tags: spxusd

Recent Posts

Crypto market deepens correction

The crypto market is facing a correction as it loses around 4.6% in value. Bitcoin…

4 hours ago

Oil: rebounded but unlikely started to recover

Oil prices rose by over 7% in the past week, reaching above $70 per barrel.…

23 hours ago

EURGBP Wave Analysis 25 November 2024

- EURGBP reversed from support zone - Likely to rise to resistance level 0.8375 EURGBP…

23 hours ago

EURCHF Wave Analysis 25 November 2024

- EURCHF reversed from support zone - Likely to rise to resistance level 0.9360 EURCHF…

23 hours ago

Important economic events of new week

The RBNZ's key rate decision, the release of the FOMC meeting minutes, and inflation estimates…

1 day ago

Crypto Recharged Over the Weekend

The crypto seems recharged over weekend, and positive traction resumed on Monday. Bitcoin may reach…

1 day ago

This website uses cookies