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Americans are more likely to go on shopping sprees when the stock market is rising — why that’s a bad thing

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Call it the Great Disconnect of 2020.

While more than 30 million Americans were unemployed at some point during the pandemic, the Dow Jones Industrial Average
DJIA,
-0.08%,
S&P 500 Index
SPX,
-0.01%
and NASDAQ Composite
COMP,
+0.41%
all hit all-time highs last year and continue to rally.

This gives many Americans a false sense of security about the country’s economic fortunes, researchers say. In fact, consumers have responded to such gains by going on credit card spending splurges, regardless of whether they invest in stocks or not. 

“A 10% rise in stock prices is associated with a rise in average spending of just under 1%,” according to a report published by the JPMorgan Chase Institute
JPM,
-0.99%
on Thursday.

The authors of the report analyzed over 12 million Chase credit-card data from 2012 to March 2020 to observe changes in credit card spending in response to stock market gains over the course of four months.

(The authors specifically chose not to include credit-card data from after March 2020 “to prevent outliers from this unique shock from driving the results.”)

The spending response to stock-market gains was stronger for male cardholders who invest in the stock market compared to non-investor men and for women.

At the same time, male investors are also more likely to add money to their brokerage accounts when the stock market rises. Low and middle-income Americans are more likely to spend more on their credit cards, and not add funds to their investment accounts if they have one.

That “could lead to widening inequality and financial vulnerability if stock-market gains are not followed by improvements in the labor market,” said George Eckerd, a financial markets researcher at the JPMorgan Chase Institute and a co-author of the report. 

“These implications could have real consequences for families and the economy as the stock market reaches record highs despite elevated uncertainty for employment,” he said.

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