Back to Trend

I was working on this earnings chart for a consulting client, and I think it will be a key point to watch for 2024.

Earnings held up very well throughout 2023 as household excess savings allowed consumers to keep spending.

According to the Fed Reserve Bank of San Francisco that gigantic sugar boost, or maybe cocaine rush?, is pretty much done. So it will be critical to see if YOLO spending will continue, especially when "buy now, pay later" is so popular.

The bulls would also say that the debt-to-income ratio is still way lower than it was in 2008-09, and the deleveraging since the GFC gives the consumer a lot of capacity to keep going. Totally fair.

Indeed, credit card balances are making all time highs even though interest rates have increased significantly. While there may be capacity, I think we can look back and (hopefully?) realize such leverage was not a great idea.

But I doubt it. Greed is a basic human characteristic and plays out in these modern times through often questionable spending decisions and habits. If you want evidence, note any NFT you like, or the average 401k balance.

Earnings have obviously benefited from the tidal wave of fiscal and monetary stimulus. And analysts are expecting those profits to rise in 2024 and 2025.

I have a hard time seeing such expansionary growth assumptions with unemployment this low (expansions usually start when unemployment is high), so I think the more probable path is a fall back to trend.