1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 67
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
to larger negative effects, underscoring the growing role of affluent households in driving total
spending whose consumption is more closely tethered to asset returns than to wages. As such, a
more top-heavy consumption profile increases sensitivity to financial market performance,
particularly in an environment characterized by narrow market leadership and stretched
valuations.
Asset price shocks dent consumption far more than employment shocks
(1) Low income growth
(2) High unemployment
(3) Low rate of return
(4) Scenarios 2 and 3
Ppt chg in consumption
0.0%
-0.4%
-0.8%
-1.2%
-1.6%
Low concentration
High concentration
Source: Dallas Fed, Scotia Wealth Management | Low-income growth refers to one year of no income growth in 2026; high unemployment refers to the
unemployment rate rising from 4 percent to 6 percent in 2026; low rate of return assumes annual return on assets falls from 4 percent to zero in 2026. Changes
are relative to benchmark scenario of normal growth, including a1.2 percent annual wage increase and the number of households increasing 0.8 percent annually.
That said, these risks remain conditional. If asset prices continue to appreciate, concerns around
concentration could become largely moot, at least for the time being. Ongoing investment in
artificial intelligence may represent a meaningful tailwind for productivity, profits, and earnings
growth – on the latter, current estimates for 2026 remain constructive. Under such conditions,
further market appreciation could continue to support household balance sheets, and, by
extension, consumption.
66
