This past week saw another ominous financial metric released. The total net worth of Americans plunged at the fastest level going back to the financial crisis in the last quarter of 2018. Falling stock market values gnawed away at Americans’ collective household balance sheets.
The end result was that the net worth cratered down to $104.3 trillion at the year’s conclusion. This represented a sharp decline of $3.73 trillion from third quarter 2018, per the Federal Reserve’s figures they released. It amounted to an eyebrow raising decline of 3.4 percent, as this chart below clearly shows:
Still think the economy is doing just fine?
A great amount of the decline was down to the troubles Wall Street wrestled with as markets endured a sharp decline beginning back in October and continuing into the end of December. At one point, the stock markets even reached official bear market levels of down 20 percent.
Stocks were tanking as observing investors started worrying if the Fed would continue to raise interest rates even with the conditions in the national economy starting to crack. When the dust finally settled on the ongoing market drop by the conclusion of December, American households had suffered through an eye watering $4.6 trillion decline in equity value.
It was made a little less bad by the accompanying $300 billion gain in the value of real estate. Yet this was still good enough for the second largest (in dollars) quarterly drop dating back to the beginning of the Federal Reserve tracking such metrics.
In the end, the total financial assets equaled slightly over $85 trillion at the end of 2018 at the same time as real estate values totaled $29.2 trillion. This significant decline contrasted sharply with the previously rising household net worth. These had been sharply climbing since the end of the financial crisis. The total has grown by 73 percent from 2009.
Some optimistic pundits think that the market will make up all of its lost ground after a strong start in January and February. Yet they are selectively looking at the market’s performance, which is already been down around 1.6 percent for March.
Also keep in mind that this past quarter’s decline in net worth happened even while the economy was growing solidly, with GDP up 2.6 percent. Earlier in 2018, national GDP growth had been almost three percent even with financial markets delivering lackluster returns. Even now, economists are projecting little growth in the American economy for 2019. The Atlanta Fed forecasts GDP growth of only .5 percent.
Besides this, the S&P 500 is already sending out warning signals of too high valuations. The index trades at around 16 times the earnings estimates for 2019 on the S&P 500 corporations. Bearish signs abound throughout the markets. These range from revisions down in earnings, to decelerating global growth, to fears of a recession induced by the past over zealous tightening activities of the Fed. Stock valuations are looking dear, according to analyst and research company Sevens Report Research founder Tom Essaye. He warned:
“On a valuation basis this market has risen to reflect a macro environment that is materially more positive than the one we currently have, and as a fundamentals driven analyst, that makes me nervous over the medium term. The current macro setup much more matches the ‘Scattered Storms’ scenario, but the market valuation is reflective of a ‘Party Sunny’ environment. That’s a discrepancy that will have to close.”
Consider yourself fairly warned. This pullback in markets looks to be far from over.
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Wall Street has a long time saying, “Even dead cats bounce when you throw them out the window.” This market has enjoyed a little bit of a dead cat bounce in January and February, but all indications are for a resumption in the market declines. You have already seen this beginning in March. The high market valuations are a warning bell.
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