“Rising home prices and a rising stock market are two key factors that are boosting consumer confidence. And a third factor is rising strength in the jobs market.
The consumer confidence index jumped 7.2 points in May to a recovery best level of 76.2. Adding to the general showing of strength is a 9 tenths upward revision to April to 69.0.”
I’ve published in the past (see Consumer – lower confidence is GOOD news) that consumer confidence, in my experience anyway, is a co-incident indicator. In other words, consumers are confident at the same time as markets are overvalued, and the inverse is also true; consumers are miserable at market bottoms.
Whenever I warn friends and family that mass bullishness is in reality an ominous market indicator it seems to go in one ear and out the other. Okay whenever I give advice I’m ignored but in this instance it’s darn good advice.
Truth is bottoms in consumer confidence are bullish. The following chart illustrates this quite nicely.
Rushing into markets today is simply a bad idea. In fact managing some downside risk (raise cash, sell puts?), would be wise, and then waiting until the next serious dip in consumer confidence (and mass bearishness) occurs is a much better idea.
Since employment in the U.S. hasn’t improved enough to warrant such optimism, it must be rising housing prices (a brand new bubble?) and stock market valuations – in both cases one might argue that they are inflated by extraordinarily low interest rates (which are already creeping up). Summer cometh and the ice under the market is getting thinner.