Stock market investors need to start worrying about Americans running out of savings, SoFi strategist says

  • Americans are saving just 3% of their income right now.
  • That could stop this year’s stock market rally in its tracks, according to SoFi’s Liz Young.
  • “What the equity market is not pricing in at this point, or is not worried enough about, is consumer spending,” she said Thursday.

Investors need to start worrying more about Americans running out of cash, according to SoFi’s head of investment strategy.

Liz Young said Thursday that falling savings levels and rising credit-card debts should be spooking stock markets, which have started 2023 with a surprising rally. 

“What the equity market is not pricing in at this point, or is not worried enough about, is consumer spending,” Young told CNBC’s “Closing Bell: Overtime”. “At some point, savings run dry.”

Soaring inflation has fueled a decline in cash reserves in the past two years, with Americans forced to dig into their savings accounts to keep up with price rises.

The US savings rate — which measures how much of the average American’s disposable income is saved — slumped from 20% in January 2021 to 3.4% last month, per the Bureau of Economic Analysis.

“I question some of the narrative around us having all these pent-up savings and sitting on these stockpiles of cash,” Young said. “The savings rate fell below 3%, we’re at lows in the savings rate.” 

People are also taking on more debt to deal with inflation, even though repayment costs have surged. They’ve risen because the Federal Reserve has sharply raised interest rates in a bid to crush soaring prices.

Credit card balances increased $61 billion to $986 billion in the fourth quarter of 2022, according to data from the New York Fed.

“If all the spending is happening on credit cards at a time when credit card rates are higher than they’ve been in decades, then that’s a problem,” Young added. “And at some point, people will run out of money.”

Lower savings and higher debt levels would likely weigh on stocks because Americans have less cash to spend on goods and services, forcing companies to slash their earnings targets.

Young’s outlook contrasts with more bullish analysts like Fundstrat’s Tom Lee and veteran economist Ed Yardeni. It also bucks the stock market itself, which has surged at the start of 2023.

The benchmark S&P 500 is up 6.5% and the tech-heavy Nasdaq Composite has jumped 13.3% this year, thanks to investors’ expectation that the Fed will soon end its tightening campaign to support the economy.

“The equity market, in my opinion, is still not quite listening,” Young told CNBC.

“The rally that we’ve seen so far this year has been very rate-driven,” she added. “I’m not saying it wasn’t true, but it was rate-driven.”

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