Chart to Watch: Most U.S. households are still cash flush
Despite somewhat sticky inflation and a recent softening in the labor market, the majority of U.S. households are in a stronger financial position than they were pre-COVID.
3 minute read
Key takeaways:
- While the bottom 20% of U.S. households might be more exposed to financial pressures, middle- and upper-income households – which represent a much larger portion of the overall economy – still have more cash on hand than before COVID.
- Middle- and upper-income households have also benefitted from stock portfolios and home values rising to all-time highs, low levels of unemployment, and wages that continue to grow well ahead of their pre-COVID rates.
- On the back of the strong consumer, we consider the risk of recession to be low in the U.S. and believe investors can continue to lean into attractive yields within high-quality consumer credit and securitized fixed income.
Source: JPM US Market Intelligence, Fed Z.1. The ‘consumer cash pile’ is defined as the combination of US households’ checkable deposits, savings deposits, and money market fund holdings. Index is adjusted for inflation using YE19 Consumer Price Index (CPI) as a base level.
In aggregate, the U.S. consumer – the bedrock of the U.S. economy – remains in good financial shape despite inflationary pressures and a softening labor market. Therefore, we believe the outlook for high-quality consumer credit and securitized fixed income remains upbeat. That said, as we witness a growing disparity in the financial strength of different market segments, it is important for investors to employ an active manager who may seek areas of strength and be selective about the types and quality of consumer credit they are exposed to.
– John Kerschner, Head of U.S. Securitized Products
IMPORTANT INFORMATION
Actively managed portfolios may fail to produce the intended results. No investment strategy can ensure a profit or eliminate the risk of loss.
Securitized products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.
Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.
Related insights
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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Important information
Please read the following important information regarding funds related to this article.
- An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
- When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise (or are expected to rise). This risk is typically greater the longer the maturity of a bond investment.
- The Fund invests in high yield (non-investment grade) bonds and while these generally offer higher rates of interest than investment grade bonds, they are more speculative and more sensitive to adverse changes in market conditions.
- Some bonds (callable bonds) allow their issuers the right to repay capital early or to extend the maturity. Issuers may exercise these rights when favourable to them and as a result the value of the Fund may be impacted.
- If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
- The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
- The Fund may incur a higher level of transaction costs as a result of investing in less actively traded or less developed markets compared to a fund that invests in more active/developed markets.
- Some or all of the ongoing charges may be taken from capital, which may erode capital or reduce potential for capital growth.
- The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
- In addition to income, this share class may distribute realised and unrealised capital gains and original capital invested. Fees, charges and expenses are also deducted from capital. Both factors may result in capital erosion and reduced potential for capital growth. Investors should also note that distributions of this nature may be treated (and taxable) as income depending on local tax legislation.
- The Fund invests in Asset-Backed Securities (ABS) and other forms of securitised investments, which may be subject to greater credit / default, liquidity, interest rate and prepayment and extension risks, compared to other investments such as government or corporate issued bonds and this may negatively impact the realised return on investment in the securities.
Specific risks
3 minute read
Key takeaways:
- While the bottom 20% of U.S. households might be more exposed to financial pressures, middle- and upper-income households – which represent a much larger portion of the overall economy – still have more cash on hand than before COVID.
- Middle- and upper-income households have also benefitted from stock portfolios and home values rising to all-time highs, low levels of unemployment, and wages that continue to grow well ahead of their pre-COVID rates.
- On the back of the strong consumer, we consider the risk of recession to be low in the U.S. and believe investors can continue to lean into attractive yields within high-quality consumer credit and securitized fixed income.