Stock futures are paring some losses after a preholiday data dump didn’t real any inflation surprises, notably via the Fed’s favorite gauge, as the last full week of trading for 2023 closes out. That’s as questions are being raised about whether the midweek plunge in stocks was random jitters, or the start of something more sinister.
Our call of the day comes from a Wall Street veteran who theorizes that based on the high number of stock holdings for American households, investors could be facing “seven lean years” of returns ahead. The U.S. household equity share of total financial assets was 36.3% in the third quarter, Joseph Lavorgna, former Deutsche Bank chief U.S. economist, who now does the same job at SMBC Nikko Securities, told clients in a recent note. That percentage is down from an record of 40.5% in the fourth quarter of 2021, but still well above any other period prior to the current business cycle, he says.
Before the pandemic’s onset, the previous record share was set during the internet boom in the first quarter of 2000, with the peak before that 36.9% during the decade’s “conglomerate fad,” said Lavorgna, who also served as chief economist of the Council of Economic Advisers under former President Donald Trump. So why does elevated equity exposure matter? “Historically, when households own a high percentage of equities in their investment portfolio, future stock returns tend to meaningfully lag historical averages,” he said. “Future returns are based on the stock market’s performance over the next seven years because this is broadly consistent with the average length of the post-WWII business cycle,” he explains. Lavorgna and his team calculated the average long-term household equity share of financial assets at 25.6%, represented by dashed line in the above chart. High or low household exposure is determined by one-standard deviation bands around that long-term average, shown as solid lines. “From 1952 to 2016, the long-term total annualized return of the S&P 500 including reinvested dividends is 11.4%. However, when the householdshare of stock holdings is one standard deviation above its long-term average, stocks return just 4.1% annu …
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Our call of the day comes from a Wall Street veteran who theorizes that based on the high number of stock holdings for American households, investors could be facing “seven lean years” of returns ahead. The U.S. household equity share of total financial assets was 36.3% in the third quarter, Joseph Lavorgna, former Deutsche Bank chief U.S. economist, who now does the same job at SMBC Nikko Securities, told clients in a recent note. That percentage is down from an record of 40.5% in the fourth quarter of 2021, but still well above any other period prior to the current business cycle, he says.
Before the pandemic’s onset, the previous record share was set during the internet boom in the first quarter of 2000, with the peak before that 36.9% during the decade’s “conglomerate fad,” said Lavorgna, who also served as chief economist of the Council of Economic Advisers under former President Donald Trump. So why does elevated equity exposure matter? “Historically, when households own a high percentage of equities in their investment portfolio, future stock returns tend to meaningfully lag historical averages,” he said. “Future returns are based on the stock market’s performance over the next seven years because this is broadly consistent with the average length of the post-WWII business cycle,” he explains. Lavorgna and his team calculated the average long-term household equity share of financial assets at 25.6%, represented by dashed line in the above chart. High or low household exposure is determined by one-standard deviation bands around that long-term average, shown as solid lines. “From 1952 to 2016, the long-term total annualized return of the S&P 500 including reinvested dividends is 11.4%. However, when the householdshare of stock holdings is one standard deviation above its long-term average, stocks return just 4.1% annu …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]