Yahoo Finance

Why the market is shrugging off consumers buying on credit

During a recent episode of Yahoo Finance’s Trader Talk, host Kenny Polcari and guest former Moody’s Chief Economist John Lonski examined the persistent chatter about consumer credit and its potential fallout. “They keep saying the consumer is spending on credit,” Polcari remarked, implying that eventually, this unsustainable behavior might lead to an implosion. Yet, Lonski countered this view by pointing to the strong stock performance of major credit card companies, suggesting that the market isn’t bracing for a credit collapse. The duo then turned their attention to the banking sector. Polcari noted that when banks began reporting, they did not overly inflate their loan loss reserves—a sign, in his view, that banks are not overly worried about a wave of defaults on mortgages or credit cards. Lonski recalled that while banks once doubled their loan loss reserves out of caution, they quickly scaled back once the anticipated risks did not materialize. This pullback indicates a renewed confidence in the quality of consumer credit. Drawing on his experience at Moody’s, Lonski expanded the discussion to the corporate bond market. He highlighted that despite recent market sell-offs, corporate bond yield spreads have stayed historically low. In essence, investors continue to demand only minimal extra compensation for the risk of default, reflecting optimism about corporate earnings and financial stability. Overall, while headlines warn of a credit implosion, evidence from both banking practices and bond markets points to a stable credit environment—at least for now. Watch more episodes of Trader Talk here. Trader Talk with Kenny Polcari on Yahoo Finance delivers expert analysis and actionable insights. Drawing on decades of trading floor experience, we empower you to navigate market volatility and keep your portfolio from getting burned. This post was written by Langston Sessoms.