The Stock Market and Household Financial Behavior

In this JPMorgan Chase Institute report, we document a high-frequency relationship between stock market returns and patterns observed in consumer spending and investing behavior. The analysis draws from a core sample of approximately 12 million active Chase credit card users since 2012, and we seek to explain how the distribution of monthly credit card spending changes responds to stock market returns. The right tail of this distribution—characterized by spending increases double or triple a person’s typical level— is over two times more sensitive to the market than the center of the distribution. The relationship is more pronounced for male investors than non-investors and women. Applying the same econometric framework for stock market returns to changes in checking account-based spending and changes in labor income does not yield a statistically discernible relationship in our sample. Meanwhile, individuals’ transfers to investment accounts display a notable correlation with lagged stock returns, consistent with “returns chasing.” Such transfers roughly doubled around the onset of the COVID national emergency, alongside sharp declines in spending. Our findings imply that policies seeking to exert control over business cycles via the stock market may be successful over short time horizons. However, since stock market gains are associated with spending “splurges” on credit cards and flows into investment brokerage accounts, stimulus aimed at supporting asset prices can come with costs in the form of households’ financial vulnerability. If gains in stock prices are not followed by an improving labor market, households that over-extend themselves in terms of spending or equity market exposure would face risks.