Like winded runners, stock markets slowed at the end
of last week.
Since the start of the year, the Dow Jones Industrials
Index has risen by almost 11 percent, hurdling past new highs several times. The
S&P 500 Index gained 9.4 percent over the same period. The index moved
higher in 10 of the past 11 weeks and finished last week just shy of its
all-time high. However, the Dow and the S& P’s momentum – and that of some other
U.S. stock markets – slowed on Friday as stronger economic data was offset by
an unexpected slump in consumer sentiment.
Economists expected the Thomson Reuters/University of
Michigan consumer sentiment index – which gauges Americans’ feelings about
their current financial health, the health of the economy over the shorter-term,
and growth prospects for the economy over the longer-term – to move higher in
March. Instead, the index fell from 77.6 to 71.8, reaching its lowest level
since December 2011. Markets fell on the news even though the negative results contradicted
those of other consumer confidence measures, such as Bloomberg’s Consumer
Comfort Index which has moved higher for six consecutive weeks.
The consumer sentiment surprise also pushed Treasury
yields down. Yields on benchmark 10-year Treasury notes fell to 2 percent. The
Treasury market remains concerned that stronger economic data could lead the
Federal Reserve to change its policy on quantitative easing. The Federal
Reserve’s next Open Market Committee meeting is next week, and may provide further
insight to the matter.
the middle class is growing. In the United States, households that earn between
$35,600 a year and $94,600 a year are considered to be middle class. That’s
about 40 percent of U.S. households (another 40 percent earn less than the
middle class and 20 percent earn more). Scholars and pundits have noted that
job insecurity and stagnant income levels have weakened the middle class in the
United States during the past few years, but that’s not what’s happening in the
rest of the world.
The global middle class has been growing and is
expected to continue to grow over the next few decades. The Organization for
Economic Development defines the global middle class as including people
earning between $10 and $100 a day with purchasing power parity. (Purchasing
power parity is the theory that currency exchange rates should adjust so the
same goods cost the same in different countries. It’s what the Big Mac Index
measures.) By 2030, according to Ernst & Young, the global middle class is
expected to more than double, adding three billion new members. These
up-and-comers primarily will live and work in rapidly-growing countries.
As the global middle class grows so should its
spending power. Between 2011 and 2030, middle class demand for goods and
services is expected to increase from $21 trillion to $56 trillion. Forty
percent of that spending will be done by the burgeoning middle class in Asia, including
China and India. According to Forbes, these consumers are creating demand for
all kinds of goods and services including cosmetics, automobiles, cell phone
minutes, personal banking, and retirement planning.
For many decades, consumer spending has been an
important driver behind economic growth in the United States. It’s likely to
play a significant role in the economic growth of emerging countries, too. As
developing countries become developed countries, interesting opportunities for
investment are likely to emerge.
Weekly Focus – Think About It
“A man who carries a cat by
the tail learns something he can learn in no other way.”
--Mark Twain, American author and
humorist
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