Deutsche Bank: Income Inequality Could Play Big Role in Stock Market – Barron’s

Deutsche Bank is proving that charts can say a thousand words about one of the most important stories of our time — income inequality.

A team of economists at the German bank has released a series of charts that paint a picture of the widening gulf between the haves and have nots in the U.S. and around the world.

“This development, combined with associated populism, could over the coming years become the most important theme for investors in US equities, rates, and foreign exchange,” says the bank, in a statement accompanying the charts. “It is important for markets to understand the drivers of inequality and how income and wealth inequality have developed in different countries. The bottom line is that inequality is increasing in most countries around the world and there are no signs of this changing anytime soon.”

One chart points out that, as of 2016, a record 30% of all U.S. households had either zero or negative net worth, when home values weren’t factored in.  Another chart shows that income inequality is higher in the U.S. than other industrialized countries throughout the world.

These statistics has great implications for the economy since its regular Americans — not the wealthy — who drive the retail economy through spending on everyday items from washing machines to cars.

What’s missing in this report is a narrative that digs behinds the numbers to tell investors how inequality to play out for various sectors of the market.  Hopefully, that will be coming from Wall Street firms and the financial press in the months and years ahead.

The report does briefly point that certain trends in technology and finance are contributing to income inequality  by creating a separate class of highly-skilled workers who can demand bigger salaries.

Automation, no doubt, would also weaken the economic prospects of those without skills.

Until now, income inequality has been viewed mostly as sociological and political story. But it clearly has great implications for investors.

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