According to the Montreal-based investment research firm BCA, equity wealth is encouraging households to spend more of their salaries than at any time since the global financial crisis. While salaries remain the most important factor driving consumption, the equity market’s wealth effect has doubled its impact on spending since 1990. BCA estimates that a $1 improvement in equity prices results in a 3% increase in consumption, compared with just 10 cents for every $1 increase in home value. If and when the stock market rally cools, households will be forced to save more.
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