*The Stock Market draws back as investors fear recession
Equity markets have been strong since 2020 due to increased technology spending and government stimulus packages. However, a reduction in low-end consumer confidence and purchasing power spells bad news for the stock market's health.
The Economies Current State
After the brief selloff at the onset of the pandemic, the United States economy has been humming. Despite the initial challenges posed by the global health crisis, the economy has shown incredible resilience and adaptability, bouncing back stronger than expected. As a result, the economy is now up nearly 25 percent year-to-date, which is inspiring confidence in investors.
Additionally, investment in Artificial Intelligence is at an all-time high, with Fabio Duarte from Exploding Markets stating, "The global AI market is worth over $600 billion." This rapid investment and growth seem positive, but there is also a tremendous amount of risk.
The Cracks of the Foundation
While Big Tech companies have been performing exceptionally well over the past year, the low-end consumer has faltered in their step. Five Below, Dollar General, and Dollar Tree are down an average of 53.74% year-to-date with earnings similarly affected, per Yahoo Finance. This consumer confidence shift in low-end buyers is significant and points to signs of unstable wages and lower purchasing power.
As this spending halt permeates into the middle class, the economy will experience a jarring stop. The current economic health of the U.S. looks strong, driven by the investment in technology and a bullish perspective. However, the economy is driven by consumer spending, and weakness in low-end consumers is the starting point for a shift in purchasing power and reduced spending from middle and upper-class citizens.
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