Long Term Perspective
There is no question that wealth plays a role in determining consumer spending. During the great bull market of the 1990s, economists regularly commented on the "wealth effect" which caused consumers to outspend their income. This chart depicts annual growth in market wealth defined by funds held in corporate equities and at mutual funds. There are certainly other types of wealth, but this is a close proxy for stock market wealth. Notice that the sum of these funds (coming from the flow of funds report) moves in tandem with the Wilshire 5000, a stock market index that covers the entire U.S. market.

Short Term Perspective
Stock prices began the new year on a good note, stumbled over the summer but rebounded smartly through November. Moderation in economic growth and lower inflation numbers have given investors hope that the Fed will be cutting interest rates sooner rather than later in 2007. Also, in September, October and much of November, lower oil prices also boosted stocks outside of the energy sector.