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Consumers may be the biggest risk to the stock market

Business growth is slowing, and the US government's economic stimulus is waning. That means America is pinni...

Posted: Jan 9, 2019 1:32 AM
Updated: Jan 9, 2019 1:32 AM

Business growth is slowing, and the US government's economic stimulus is waning. That means America is pinning its hopes on consumers to keep the economy growing.

If people become more cautious about their spending, that could weigh heavily on the economy and stock market, says Mark Howard, senior multi-asset specialist at BNP Paribas. He said he remains concerned about possible shocks to consumer confidence and behavior this year, calling consumer spending the biggest risk to markets.

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Howard will appear on CNN Business' Markets Now live show, hosted by CNN Business editor-at-large Richard Quest, on Wednesday at 12:45 pm ET.

Consumer spending makes up two-thirds of US gross domestic product. But consumers' confidence has fallen for two straight months, according to the Conference Board, although it remains at an historically high level. Consumer confidence in October was at its highest since 2000.

There's no reason to panic. But corporate earnings, which also fuel the economy, are starting to slow, too. Companies expect profit growth of about 7% this quarter, far lower than the growth of more than 20% in 2018. And the Institute for Supply Management's manufacturing and services sector reports this month showed business production is starting to slow — the manufacturing index fell by the largest amount since 2008.

The good news is the economy is not close to a recession. The stock market shuddered last month over the risk of a downturn, but the economy remains healthy. Stocks are posting a decent comeback this month.

The global economy will gradually slow as a whole, Howard believes. That's why the Fed is being more cautious about its monetary policy. Wary of raising interest rates too quickly, the Fed signaled two rate hikes in 2019 — half the number from 2018. The Fed is also gradually shrinking its balance sheet instead of dumping all economic stimulus at once.

Still, investors remain extremely fearful, according to CNN Business' Fear and Greed index. A bad consumer confidence reading or a spate of lousy earnings reports could rattle markets once again.

"Markets Now" streams live from the New York Stock Exchange every Wednesday at 12:45 p.m. ET. Hosted by CNN's business correspondents, the 15-minute program features incisive commentary from experts.

You can watch "Markets Now" at CNN.com/MarketsNow from your desk, phone or tablet. If you can't catch the show live, check out highlights online and through the Markets Now newsletter, delivered to your inbox every afternoon.

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