High Consumer Confidence is bad news for stock market!

happy-cartoon-man-with-shopping-cart-and-houseThe latest consumer confidence release shows a significant improvement.

“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.

Consumers like stocks.As you can see from the adjacent chart (from WSJ) now that consumers are feeling good (whether it’s strong housing prices or whatever) they’re also bullish.

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.

Confident Consumer May 2013Rushing 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.

 

 

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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5 Responses to High Consumer Confidence is bad news for stock market!

  1. GR says:

    Oh how I hate to agree Mal, which I do, however, there is one thought that keeps me awake at night — the Feds can keep the markets irrational for some time by increasing the fiat wall paper.
    On another take I have never seen in my lifetime the government being supported to the extent they are by the media. Of course, it is in the best interest of the country to perpetuate the game of monopoly but that is very short-term thinking, and the ultimate damage that can be done will be ten times worse when it comes.

    • Mal Spooner says:

      The Feds have kept the markets crazy for far too long already…but you are right. With media and everyone else so happy, something will go wrong (at least always has in the past). Damage will be ugly..maybe for just short term since the economy has legs, but ugly nevertheless. Thanks for your comment.

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  4. Your style is so unique compared to other
    people I’ve read stuff from. I appreciate you for posting when you have the opportunity,
    Guess I will just book mark this site.

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