• Why Low Consumer Confidence Is A Good Thing

    by  • March 27, 2013 6:30 am • Breaking News, Broad Market Analysis • 7 Comments

    Consumer Confidence dropped to 59.7 from 69.0 last month.  This comes out to a 13% drop in one month, a rather substantial drop in a short-term period.

    What is interesting and worth noting, is it looks like low Consumer Confidence is actually bullish for the stock market.  Think about it, when everyone has low expectations that can bode well to beat those lowered expectations.

    Going back to 1980, there have been 60 occurrences where Consumer Confidence came in beneath 60 (like this month) and looking out the returns on the SPX aren’t too bad.  That 3-month return of +3.3% and up 73% of the time really stands out.

    What about the big monthly drop we just saw?  Again, Consumer Confidence dropped 13% this month and looking at other drops of greater than 10% we find bullish results.  1-, 3-, and 6-month returns all beat the at-any-time returns after a big drop in Consumer Confidence.

    Lastly, here is one of my favorite charts I’ve seen in a while.  With the SPX up near the 1,550 area once again, you can see that Consumer Confidence is much lower this time around.  In fact, back in 2000, Consumer Confidence was 145 versus just 60 now.  Both times had the exact same SPX levels.  Then throw in the 2007 peak, which had Consumer Confidence of about 110 versus the 60 now.  From a longer-term perspective, this continually lower trending Consumer Confidence could have extremely bullish results for the SPX.

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    7 Responses to Why Low Consumer Confidence Is A Good Thing

    1. Brandon Gilkey
      March 27, 2013 9:07 am at 9:07 am

      this is very interesting numbers…funny how bears can take any thing you say and assume you’re a perma-bull…ha. He must be short.
      thanks RD for your insights and always looking thru objective lenses simply relaying what the data & history says/shows.

    2. Eddie
      March 27, 2013 8:29 am at 8:29 am

      Somehow I get the feeling if CC printed at 85 yesterday you wouldn’t be writing an article how a good CC number is really bad.

      • March 27, 2013 8:55 am at 8:55 am

        The reality is this has been low for years now. Simply amazing take on overall sentiment.

        • Eddie
          March 27, 2013 10:40 am at 10:40 am

          My only point being that if a bad number is good and a good number is also good, why do we even bother with economic numbers at all?
          Brandon, I am long the market.
          We are simply in an environment where you can take every econ number, good or bad, and throw it in the trash. One thing matters: 85 billion a month.

          • March 27, 2013 11:11 am at 11:11 am

            Good point Eddie. We’ve looked and nearly all economic data has little to no relevance as to what the SPX might do. Still, that low consumer sentiment I think has more lasting power from a contrarian point of view.

          • Guest11235
            March 27, 2013 11:21 am at 11:21 am

            as Ryan points out they have looked at nearly all economic data and it has little to no relevance as to what the SPX may do. People love to forecast though, thats all thats going on here, very often forecasts are being derived from something other than the market. There are all kinds of “macro” punters out there doing this with varying degrees of success. This disconnect is also not “new” since QE. One can find any number of texts drawing out to this conclusion long before QE started. It used to be stated in a simple way: the stock market is not the economy. Perhaps there are different degrees of truth to that statement at any given time but the fact is, if you want to trade the market best to trade the market, rather than the economic datas forecasted impact on the market.

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