By Jamie McGeever
ORLANDO, Florida (Reuters) – TRADING DAY
Making sense of the forces driving global markets
Global equity markets on Monday kept up the positive momentum initiated by Friday’s rebound, as investors parked their concerns over escalating global trade tensions and hoovered up cheap and beaten down stocks.
Many short-term positioning and momentum indicators suggest Wall Street was oversold, so in that light a continuation of the recovery is understandable. Chances for a truce in the Ukraine-Russia war, slender as they may be, are also lending some support to risky assets at the margins.
But there are plenty of reasons to be wary of chasing this bounce too aggressively – Monday saw the release of yet another surprisingly weak U.S. retail sales report, and the White House confirmed President Donald Trump’s previous pledge that reciprocal tariffs will come into effect on April 2.
Today’s Key Market Moves.
But impressive as the global rebound has been over the last two trading days – more than 3% in both the S&P 500 and MSCI World Index – it’s a brave person to call this a definitive turn.
There’s simply too much uncertainty and too little visibility around Trump’s trade war for that. And the U.S. economic data continues to soften – Citi’s U.S. economic surprises index has been in negative territory since February 20 and is languishing near its lowest level since September.
The outlook for other major economies, notably China and Europe, is brighter.
February’s ‘data dump’ from China was mixed but did include strong retail sales figures, and Beijing has made spurring domestic consumption a priority. Meanwhile Germany’s plans to open the fiscal taps are a huge boost to Europe’s growth prospects.
The picture in Japan is in many ways more fascinating. The Bank of Japan is keen to continue normalizing policy after decades of ultra-low and negative interest rates, a stance that is justified by the rapid pace of wage growth.
According to Jeff Weniger, head of equities at WisdomTree, Japanese wages are now outstripping U.S. wages at the fastest rate in decades. Long-term Japanese Government Bond yields are printing new multi-year highs almost on a daily basis – the 40-year JGB yield is fast approaching 3%, and on Monday rose for a 13th day out of the last 14.
But higher borrowing costs, global market turbulence and trade war uncertainties are being felt – Japan’s economic surprises index on Monday fell to the lowest since January.
The BOJ is unlikely to raise interest rates again later this week, and money markets are pricing in a 25 basis point move in June or July.
In the U.S., consumers may also be feeling squeezed, not by rising borrowing costs, but by falling asset prices.
Houston, we have an asset problem, not a debt problem
It’s widely believed that the biggest issue with U.S. consumers’ balance sheets is indebtedness, but the Federal Reserve’s latest financial accounts – and the volatile stock market – suggest that larger risks may be on the other side of the ledger.
This seems counterintuitive. Household wealth has never been higher, rising some $163 billion in the fourth quarter of last year to a record net $169.4 trillion, as gains in stocks and ‘other’ assets more than offset declines in bonds and home prices, according to the Fed’s latest report.
And when looking at assets as a share of gross disposable income, considered a more accurate barometer of wealth, households have rarely ever been richer.
But cracks are starting to appear in the edifice.
Households directly or indirectly owned $56 trillion worth of stocks at the end of last year, a record amount. As a share of total gross wealth, equity exposure is at a historically high level, and vulnerable to a significant decline if markets slide.
The market is wobbling. With only two weeks left of the current quarter, the S&P 500 is heading for a fall of 4% and the Nasdaq is down 8%. Some $5 trillion has been wiped off the U.S. stock market in the last month, the sharpest dose of wealth destruction since the bear market of 2022.
This has potentially profound implications for a consumption-based economy where the top income decile – the owners of nearly all of the country’s financial assets – is responsible for roughly half of the nation’s consumer spending.
So while it’s famously been said that “the stock market is not the economy,” that may not be strictly true.
Oxford Economics’ chief U.S. economist Ryan Sweet – one of many who have recently cut their 2025 growth forecasts – has warned that household net wealth matters more for the consumer spending outlook than ever before.
“A stronger wealth effect has proven to be a tailwind for overall consumer spending, but it could just as easily turn into an outsize drag in the event of a bear market,” he wrote last week.
HIGH WATER MARK
He’s right. One of the most remarkable statistics in recent years is that the U.S. economy has grown 50% in nominal terms since the post-pandemic low in 2020, less than five years ago.
Household wealth has played a key role in this via a virtuous cycle of strong consumer spending, high corporate profits, soaring stock markets and resilient economic activity.
But what if one part of that cycle – asset prices – has reached its high-water mark?
What was a virtuous cycle when asset prices were rising could quickly flip to a vicious cycle when they fall. We may already be seeing the beginnings of this. Consumer sentiment is now at a two-and-a-half-year low, University of Michigan surveys show, and tepid monthly retail sales reports are offering reasons to be concerned.
ON THE OTHER SIDE
Meanwhile, the other side of the household balance sheet is actually in relatively good shape.
Total nominal debt fell slightly in the fourth quarter to $20.79 trillion, the first decline in nearly five years. And if you exclude a few quarters in the pandemic distorted by government stimulus checks, debt as a share of gross disposable income is now the lowest since 1999. Applying the same criteria, mortgage debt – households’ biggest single debt burden – as a share of GDI is the lowest since 1998.
So overall, debt levels appear relatively low and stable, while asset values are high and primed for a fall.
What could move markets tomorrow?
If you have more time to read today, here are a few articles I recommend to help you make sense of what happened in markets today.
I’d love to hear from you, so please reach out to me with comments at . You can also follow me at [@ReutersJamie and @reutersjamie.bsky.social.]
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(By Jamie McGeever)
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