The American consumer has rarely been this robust. Why not? We know the determinants of strength: 1. Plentiful jobs so you don't fear being fired and have mobility; 2. Investments increasing in value including a residence; 3. Free time as a way to take part in the new economy.
Let's examine all three. First, every time I want to get as pessimistic as everyone else I talk to. However, I keep coming back to the ease with which people can get a job. Right now, the recession thesis, dictated by the history of the inverted yield curve, is so palpable that none dare call decent growth. But when I grill CEOs about which is harder, the planning for a recession or the recruiting of talent in a tight labor market, I ALWAYS get the latter. There are so many more jobs than there are people to fill them that I am not as concerned as I would be about the coming layoffs in retail and banking, which will be substantial if you take into account press reports about these two industries.
Two. While the destruction of the SALT deduction was supposed to end the increasing of homes values, with the exception of New York, New Jersey and somewhat California, it didn't have much impact. No kidding - they are the high tax states. Few others rival them.
Instead, what has happened is that homes are still good investments, made better by the crashing of mortgage rates. Affordability, which had become an issue because of Fed tightening, isn't anymore.
Three. The new consumer, the millennial consumer, is so different from the baby boomer consumer that her tastes are almost impossible to fathom by anyone older than 30. But here's what they care about: they think they are never going to make as much money as their parents and, perhaps because of that, perhaps because of student debt, perhaps because of the need to be frugal, perhaps because how they are able to price check, perhaps because of the gig economy and no loyalty to anything, and perhaps because they like to be on the couch, they are just are so darned different that they have to be fathomed no matter what.
So what does that stew of preferences mean? I think it means that they are spoiled by the two most important influences of their era: Amazon (AMZN) and Netflix (NFLX) . Oh, don't laugh. Think about what stocks do well in this environment. First, think anything that is convenient that might not have been: Yum (YUM) versus Domino's (DPZ) now that it has delivery, Starbucks (SBUX) , McDonald's (MCD) , and Chipotle (CMG) , for the same reason, and Target (TGT) and Walmart (WMT) which have credible delivery offerings.
Netflix? What are the themes that are lasting here? Sitting at home having delivered so you can sit in front of your TV undisturbed to watch Netflix, video games - think Take-Two (TTWO) and, of course, the hottest stock of our era: Roku (ROKU) , the little engine that could.
Now, what's the real oddity? What's been rejected by this next generation: housing and cars. We are building about half as many homes with 327 million people as we did with 202 million. What does that tell you other than owning a home has either become the providence of the rich and isn't attainable, or these next generations simply don't value owning a home or would rather stay with their folks.
Autos? Same deal: we had 282 million people in this country when we sold 17 million vehicles 10 years ago and now we are selling the same number with 327 million people. That's Uber (UBER) and the end of the auto value/love proposition.
The final straw? The consumer gets his or her news and information from the web. That's brought about a spending pattern that starts with the iPhone, not the ads, not the mall, not even the demand. If you aren't online, you better be off price, or else you are nowhere.
There are plenty of other preferences: fresh, organic, experiential (increasingly abused by marketers) shared, subscriptions, bargains galore, but the freedom of choice coupled with a plentiful job market and frugality define this new beast that's got so many older people fooled.