Stocks most susceptible to a stronger Wealth Effect - BofA
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The big expansion of the retail investing crowd could make a coming economic slump even more pronounced, according to those who subscribe to the Wealth Effect theory.
The Wealth Effect postulates that consumption increases as wealth in market portfolios and real estate rises. Conversely, in bear markets and housing slumps, consumers would rein in spending.
The flood of money from stimulus checks and the ease of brokerage apps like Robinhood led to a jump in the number of market participants. But a lot of wealth has been destroyed since the meme stock craze.
"We believe that the wealth effect, which typically states that one dollar of wealth destroyed translates into a 2c to 4c hit to consumption (NBER), could be more pronounced this downturn given the democratization of markets in recent years," BofA strategist Savita Subramanian and team wrote in a note.
They screened for companies that have a positive correlation between sales growth and S&P 500 (SP500) market returns (NYSEARCA:SPY) (IVV) (VOO) and consumption growth, using 20 years of data.
The companies with the highest combined correlations, which could feel the pinch of declining wealth and consumption, are:

Allstate (ALL), correlation vs. S&P 500 63%, correlation vs. consumption 63%
CarMax (KMX), 42%, 65%
Loews (L), 62%, 35%
Schwab (SCHW), 34%, 58%
T. Rowe Price (TROW), 55%, 35%
TJX (TJX), 21%, 68%
Ralph Lauren (RL), 14%, 74%
Ross Stores (ROST), 12%, 74%
SVB Financial (SIVB), 40%, 46%
Pool (POOL), 39%, 46%
Goldman Sachs (GS), 33%, 51%
Simon Property Group (SPG), 27%, 56%
Cincinnati Financial (CINF), 49%, 32%
Progressive (PGR), 41%, 39%
McDonald's (MCD), 15%, 63%
Invesco (IVZ), 38%, 40%
Brown Forman (BF.B), 35%, 41%
Altria (MO), 45%, 30%
International Flavors and Fragrances (IFF), 15%, 58%
Weyerhaeuser (WY), 24%, 49%
Marsh & McLennan (MMC), 34%, 39%
Alaska Air (ALK), 1%, 71%
Pfizer (PFE), 8%, 64%
Waters (WAT), 16%, 56%
Morgan Stanley (MS), 33%, 38%
Regency Centers (REG), 35%, 37%
Boston Scientific (BSX), 36%, 34%
W.R. Berkeley (WRB), 24%, 47%
D.R. Horton (DHI), 26%, 43%
BorgWarner (BWA), 10%, 59%

Strategas' Jason Trennert says recession chances are significantly higher.