Inflation is driving earnings and the equity market, economist says

US equities (^GSPC, ^DJI, ^IXIC) are on the up and up as the Dow Jones Industrial Average tries to assert dominance over its record 40,000 benchmark and the S&P 500 remains above 5,300. However, consumer sentiment has fallen to its lowest point since November 2023 as American consumers still cite inflation as their biggest financial worry.
US Bank Asset Management Group Chief Investment Officer Eric Freedman and Mizuho Securities USA Chief Economist Steven Ricchiuto join Wealth! to discuss the current economic landscape and give insight as to why consumer sentiment remains low as markets trade at record levels.
On the pressure consumers are facing, Ricchuito offers: "It's the level of prices. Prices went up substantially in the post-COVID environment and they continue to be at a high inflated level. And that is really eating into household disposable income in terms of their discretionary spending. Now, on the other side of this equation, the inflation is helping corporate America produce solid earnings. And as a result, it's driving the equity market."
Freedman states that not only is inflation affecting corporate earnings. "but also the housing market and one of the things that you're seeing is that if you own a house, your house value has probably gone up. You're spending more money. If you don't own a house, you want one, it's of course very difficult to get one. Both with respect to housing prices, but then also the cost of financing. So that has a double-edged sword effect, if you will."
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