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Investing.com – Like every year-end, investors wonder if we will see a Christmas rally in . According to Steven Bell, Chief Economist EMEA at Columbia Threadneedle Investments, something similar could happen, mainly driven by a recovery in consumption.
This is because, after the last two Christmas periods penalized by Covid, consumers are ready to spend what they have accumulated, despite the rise in energy prices.
US consumer spending
Consumer spending is something economists are usually very good at predicting. It can be reliably related to factors such as income, wealth, and so on.
Recently, however, it has been much more difficult to predict, due to the pandemic. Developed country governments have issued several financial aids, but closures and lockdowns have prevented consumers from spending,” comments Steven Bell.
This dynamic has led to an accumulation of savings, a sort of “Covid piggy bank”, which, for example, American consumers have already partially begun to use during the year. And thanks to these savings, consumption in the US was not reduced by 6%, and consequently a great recession was averted
Europe more in difficulty
According to the ColumbiaTI expert, the story is different in Europe, where the war in Ukraine has hit savers’ confidence hard both due to the soaring gas prices and more general fears related to economic and military uncertainty.
“European consumers have stopped hoarding their piggy banks, but they haven’t used them yet, unlike their US counterparts,” Bell explains.
In light of the impact that Covid has had on the last two years of the holidays, ColumbiaTI believes that “this year we could see more substantial spending in Europe
and in the United Kingdom, as well as in the United States”.
However, for low-income savers this won’t happen due to rising bills, but in general Bell expects higher aggregate spending.
From the rally to the increase in consumption
“Undoubtedly stronger spending means that labor markets will remain tight and profit margins will remain high. However, this will not change the long-term outlook, when bills are collected. And with inflation eroding cash flow, the aftermath of January’s spending could be worse than usual,” concludes Columbia expert Threadneedle Investments.
Despite this short-term boost, the long-term outlook remains challenging. Analysts like to talk about a holiday rally, where stocks perform well as the holidays approach. At Columbia Threadneedle, we believe something else could be happening – increased consumer spending around Christmas and the New Year,” comments Bell.
This article was written exclusively by Financialounge.com for Investing.com. Each week, “Market View” features original interviews with investment houses on key market topics that will be featured exclusively on our site. It does not constitute a solicitation, offer, advice or recommendation to invest
