Even Rich People Are Starting to Get Nervous About Trump’s Economy

If U.S. stock prices continue to fall, wealthy consumers could slow their spending, putting further pressure on the U.S. economy and markets.

That could mean everything from fewer luxury cars and handbags being sold to reduced demand for top-end homes and fancy vacations.

Broadly, retail sales rose a less-than-expected 0.2% in February from January, the Census Bureau reported earlier this week. There are signs affluent consumers are holding back, too. Major airlines cut their guidance for the first quarter last week on expectations of weak demand. And U.S. credit-card spending on top luxury brands declined 5% year over year in February, Citi reported on March 11.

Though it’s “too early to tell” whether spending will contract, every dollar decline in the value of assets, such as stocks or real estate, leads to a two cent decline in spending among “upper-end consumers,” according to Joseph Brusuelas, chief economist at RSM U.S.

Brusuelas’ calculation describes the so-called negative wealth effect, when a decline in investment portfolio value affects consumer attitudes toward how much they can spend.

Today, the S&P 500 is struggling, down just over 1% on Tuesday , leading to a 4.5% decline year to date, after slipping into correction territory last Thursday.

Even that 10% decline doesn’t mean a pullback in spending by the affluent is imminent, Brusuelas told Barron’s .

But the “volatility, uncertainty, complexity, and ambiguity,” in geopolitical, economic, and market news coming out of the U.S. doesn’t bode well for luxury spending in particular, according to Erwan Rambourg, global head of consumer and retail research at HSBC.

“Luxury demand is holding up in the U.S., but I’m not sure for how long,” Rambourg told Barron’s . “There might be a lag between the data points, the markets, and the actual spending.”

In addition to sharp declines in stocks and cryptocurrency since mid-February, affluent Americans are facing a decline of 5.39% in the value of the U.S. dollar against the euro this year. By contrast, the euro lost 6.2% against the dollar last year.

The dollar’s decline not only affects the price of luxury goods—many of which are made in Europe—but the desire of U.S. consumers to travel and spend across the Atlantic, according to HSBC.

Another challenge is the uncertain trajectory of tariffs on goods from Canada, Mexico, and Europe.

“I’ve always thought that you bought luxury not because you were wealthy, but because you were confident about the future,” Rambourg said. “The whole tariff conversation—the reversals on Canada and Mexico—one day it’s 25%, the following day it’s postponed by a month, the following day, you have some exceptions…if you’re a business manager and if you’re a consumer, obviously that will affect your confidence in a big way.”

Still, wealthier consumers have a significant buffer in their investment portfolios, which have grown substantially over several years of upward equity returns, according to Katie Nixon, CIO of Northern Trust Wealth Management.

“In any given year, you expect to have 5% pullbacks almost routinely,” Nixon said. “It’s just that we haven’t had one in a while so this feels kind of extreme.”

Investors know that markets can fall significantly, as happened during the financial crisis in 2008 or during the early days of pandemic, according to Scott Zelniker, private wealth advisor at UBS Wealth Management. “More often than not, the market was up significantly 12 months later,” Zelniker told Barron’s .

One topic of conversation among Zelniker’s clients, however, is whether to buy the cars they are leasing when their agreements expire instead of re-leasing them as usual, considering the potential for tariffs to lead to higher-priced automobiles, he said. “They already have a contract with a price.” Why buy, or lease, a new car?