The sense that the Federal Reserve’s widely expected interest-rate cut would be the last for awhile drove stock investors to the exits on Wednesday, but that isn’t the only disturbing economic news shareholders have had to digest this week. Namely, July’s big increase in consumer confidence, which is anything but bullish for the U.S. market.
In fact, the Consumer Confidence Index is a contrarian market indicator: high values are bearish for stocks and low values are bullish.If you have any doubt, review the chart below, which plots the CCI’s monthly readings back to 1977. The highest CCI readings occurred in early 2000, at the top of the internet bubble. I need not remind you what came next.
The table below reports the performance of the S&P 500 SPX, -0.41% following above- and below-average CCI readings, as well as in the wake of CCI readings that are in the highest 10% of the historical distribution. The latest CCI level is at the 95th percentile, by the way. Recent gyrations in the CCI were quite predictable, therefore. The stock market suffered a nasty tumble in May, while in June the Conference Board reported that the CCI had plunged. The stock market then recovered to new all-time highs, and — sure enough — the CCI jumped back up.
MktwHulbert Fear monger
MktwHulbert Investors should be in a portfolio strategy that is suitable regardless of short term market volatility and downside potential. Be prepared for anything and everything. Nobody has a crystal ball or time machine.
MktwHulbert Maybe it’s all of the pro business democrats in the debates? Business confidence must be dwindling away. Not investing to grow their business with election uncertainty. Consumer and business confidence combined with global growth slowdown will certainly have an impact.