Experts warn: Wealth reduction and the "CNN effect" could severely impact the U.S. economy

Gelonghui April 3rd｜Christopher Harvey, Executive Director and Head of Equity Strategy at CIBC Capital Markets, pointed out that the impact of a stock market decline on the economy may be beyond imagination, The wealth effect and "CNN effect" on consumer spending will outweigh gasoline prices at gas stations. The so-called "CNN effect" refers to 24-hour continuous news coverage influencing decision-makers; in the context of consumption, it means headline news drives consumers to change their behavior. With frequent reports on the Iran war and surging oil prices, consumers feel anxious about financial stability and consequently cut back on spending. In addition, a decline in the stock market will further hit consumption through the wealth effect. According to research by Oxford Economics, For every $1 decrease in wealth, spending measured by the Personal Consumption Expenditures Index (PCE) falls by 14 cents. US consumption accounts for about two-thirds of economic output, with the top 10% high-income group contributing nearly half of the spending. Since these affluent groups hold most of the stocks, they are most acutely affected by the wealth effect.