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A broker views his monitor at the Stock Exchange in Frankfurt, Germany, Wednesday, Jan. 2, 2013. Financial markets worldwide eased after the United States averted the so-called fiscal cliff.
A broker views his monitor at the Stock Exchange in Frankfurt, Germany, Wednesday, Jan. 2, 2013. Financial markets worldwide eased after the United States averted the so-called fiscal cliff.
(Arne Dedert/AP)

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What the wealth effect says about the stock market

People who are richer – or just believe they are richer – spend more money. As the value of homes or stock portfolios rise, owners have a tendency to open their wallets.

This correlation, called the wealth effect, is at play now as the stock market responds to the strengthening of the U.S. housing sector, as well as the stabilization of Europe and Chinese manufacturing. Now some market watchers are predicting which sectors will benefit as people increase their spending.