how the wealth effect works
the wealth effect reflects the psychological effect that rising asset values such as those that occur during a bull market have on consumer spending behavior the concept hones in on how the feelings of security referred to as consumer confidence are strengthened by sizable increases in the value of investment portfolios extra confidence contributes to higher levels of spending and lower levels of saving this theory can also be applied to businesses companies tend to increase their hiring levels and capital expenditures capex in response to rising asset values in a similar fashion to that observed on the consumer side 