Fizzle: Stock Market Swoons – Will Wealth Effect, Too?

The wealth effect. It’s ephemeral, fleeting and widely desired. Especially for consumer spending.

Generally, the wealth effect works this way: When people see their stock portfolios going up, as markets go up, of course, they feel more confident about their financial security. When they feel more confident about their financial security, they go out and spend more money. In essence, paper wealth translates into real wealth spent at the counter.

The economy, too, has been strong, with record lows in unemployment and companies jousting for talent. The latest consumer spending data, which bowed in late April, showed an uptick of 90 basis points, far outpacing the 10 basis points seen in the previous month.

But.

Right now, the markets are in a swoon. At this writing, in intraday action, the broader S&P Stock Index is down 55 basis points, and that comes on top of a week that has seen more than a 2 percent drop. The casualties are widespread across all sorts of sectors, and one headline Friday (May 10) shouts that Apple has lost $75 billion. And Bloomberg reports that as a group – at least as measured by the S&P – stocks have lost $650 billion.

The trade war is back on, it seems, in full force. And suddenly, industrial stocks and tech stocks have investors crowding the exits. President Donald Trump said tariffs were back on – and now they are on, as of Friday (May 10), with an eye on raising tariffs on goods imported from China from 10 percent to 25 percent.

Pending a reversal Friday, stocks have dropped for five straight days – and yes, the recent slide comes from peaks never seen before.

The fundamentals may be showing, though, that things have been as good as they might get. There is that low unemployment number, the fact that margins are high and inflation relatively tame. As reported Friday, Gregory Daco, chief U.S. economist at Oxford Economics, has said the escalating trade war may cost the country as much as $29 billion through 2020, and as much as 0.3 percent of the GDP next year. Amid all that, some downtrend in stocks is to be expected – especially if companies start feeling the pinch of the trade wars. That means the wealth effect may diminish or disappear – and purse strings will tighten.

Sizzles

Logistics startups: Amazon is putting $800 million into its one-day shipping efforts, and the ripple effect is that competitors such as Walmart and Best Buy will look to speed their own delivery pipelines. This should boost interest in linking up with, and funding, startups such as Flexe and Dolly, which have recently been recipients of funding rounds.

ACH: Steady as they go. Recent numbers show continued traction, with the daily average volume up 7.5 percent in the first quarter. And a record was set in February of this year, when volume exceeded 100 million payments for the first time. Internet-initiated payments jumped 10.3 percent year over year to 1.6 billon.

Java with a splash of AI: Starbucks is teaming up with Microsoft on AI-powered initiatives spanning predictive analytics that take into account customer preferences – speeding drive-thru times – to connect coffeemakers in the cloud, for maintenance purposes.

Fizzles

Lyft: No post-earnings surge for the ride-hailing company, where no matter how you slice it, the ink was red. The company saw $1.1 billion in losses, the bulk of which was stock comp, underscored by a continued focus on transportation. Management sees leverage in the existing model, but the road to black ink might be long. The stock was down, cumulatively, about 10 percent in the wake of earnings.

Crypto funding: WeChat has banned merchants from raising funds through cryptocurrency or tokens. The move comes as the country has been tightening its controls over crypto operations in recent months.

MoneyGram: Yes, digital was up double digits in the first quarter, but 16 percent of revenues was not enough to staunch headwinds in the core money transfer business, which included continued restructuring and challenges in its U.S. domestic flows. Top lines slid, results were worse than expected and the stock was off more than 22 percent in the wake of results.