I actually had a genuine question about this theory that housing downturn will reduce consumer spending thus bringing down the stock market in general.
Don’t we need to find out which sectors of economy profited most from this consumer spending spurred by housing in the last 5 years? If a sector didn’t benefit from the consumer spending then why a decrease in consumer spending should affect it? Other than REITs, commodities (PM), emerging markets, small caps, etc, are there any other sectors that blossomed due to the increased consumer spending? I personally think emerging markets(China) will get most affected by this reduction in consumer spending.
To me the cycle goes like this: More money printed and borrowed by govt increasing trade/budget deficit->money passed on to people via low rates to buy houses->housing prices boom->money taken out of houses to spend->huge trade deficit indciates that majority of supply for this increased consumer demand came from China -> profits boom in China (emerging markets) -> Chinese investors buy US treasuries from these profits, thus completing the cycle.
Anyway, if US stocks are going to tumble then does anyone have any idea when the slide will start (if not already) and when do we expect to hit bottom and which sectors will be most affected? Taking all your equities out based on the general thinking that reduced consumer spending will take down all stocks maybe the safe game to play for now. But I wanted to know if folks think that we can do better? And where?