Record-Breaking Stock Numbers Could Prompt Consumers To Spend More

Consumer confidence could surge in July with both the Dow Jones Industrial Average and the S&P 500 showing out in June. The S&P 500 closed out the start of the year with its best first-half numbers since 1997.

Stocks closed higher Friday, June 28 in anticipation of trade talks between U.S. President Donald Trump and Chinese President Xi Jinping at the Group of 20 summit in Japan over the weekend. 

Chart: FreightWaves' SONAR

The Dow rose over 7 percent, closing at 26,599.96, last month, making for its best June since 1938. The S&P 500 closed at 2,941.74, accounting for a 6.9 percent climb last month. This made for its best June since 1955.

Both indices continued to climb and opened at record highs on Monday, July 1. 

The S&P 500 closed at 2,964.33 Monday. It was trading at over 2,968 at midday Tuesday. The Dow closed at 26,717.43 Monday and was trading at over 26,730 at midday Tuesday. 

Chart: Freightwaves' SONAR

The standout numbers came after some hiccups amid uncertain trade conditions early last month. The Mexican Senate ratified a new North American trade agreement in mid-June, sparking higher consumer sentiment. Trade talks between the U.S. and China could also ease some remaining consumer weariness. 

"Consumer sentiment took a bit of a hit early last month after the stock market fell due to trade policy concerns with China and Mexico," FreightWaves Chief Economist Ibrahiim Bayaan said. "Weak jobs numbers for May also played a role in the drop in consumer sentiment." 

Record-breaking stock prices, coupled with progress on the trade front, could contribute to a surge in retail activity in July. Retail sales are already strong, with May's numbers coming in higher than forecasted. 

"Now that the situation with Mexico is resolved and there were some modest steps taken with China, stocks are back up," Bayaan said. "This should help consumer confidence, which should translate to better retail performance. The only missing piece here is how job growth is doing."

A climbing stock market could have consumers reaching for their wallets more often and making bigger purchases, helping sustain retail growth throughout the summer. This could be more modest, however, if job growth continued its downward trend in June. Those numbers are set to be released on Friday, July 5.

"Job growth slowed considerably in May, as businesses added just 75,000 workers to payrolls during the month," Bayaan said in his recent economic roundup. "In addition, results from March and April were revised downward by a combined 75,000 jobs, indicating that trends in hiring have not been quite as strong as previously thought."

Wage growth also fell slightly below expectations in May, according to Bayaan. Still, U.S. unemployment hovered around a 50-year low of 3.6 percent. 

If workers' wallets get fatter alongside stock market growth, the summer months will certainly see higher spending. This will likely be less true if hiring and wage growth continue to slow, leaving consumers with less tangible evidence of a strong market.

Image Sourced From Pixabay