Bank of America recently reported strong results, providing investors with confidence that the consumer is in good shape. This read on BAC’s commentaries caused a melt-up in the market (S&P 500 up +2.6% on 10/17 & +1.3% on 10/18).
Consumer spending growth across all its platforms grew +10% in September (down just slightly from +12% YTD results) with this growth rate maintained during the first 2 weeks of October. Spending on gasoline (reflecting high prices) and travel & entertainment were very strong while retail spending was the most muted.
Notably, consumer deposits are up significantly since pre-covid which adds to confidence that consumers can continue to tap savings to pay for inflationary pressures.
Also, Bank of America’s consumer loans grew +7% y/y (including +12% consumer credit card growth) while commercial loans increased +17% y/y during the quarter. At the same time, the bank reported that its late-stage credit card delinquencies are still 40% below pre-pandemic levels – suggesting that consumers can handle this extra debt for now.
Maybe we are old-fashioned, but we would like to see consumer spending grow (and not because inflation is driving prices higher) while consumer debt decreases. That would reveal a healthy consumer, a sound economy, and a good reason for a stock market melt-up in our humble opinion.