Related Topics
Economy , Investing
     

Global Investing: Here’s the Message of Consumer “Overconfidence”

Bear markets tend to follow this particular sentiment

by Bob Stokes
Updated: July 22, 2021

In many global regions, economies are flourishing.

For example, here are two headlines about the U.S.:

What America's Startup Boom Could Mean For The Economy (npr.com, June 29)

Inflation Rose in June as Economic Recovery Continues (WSJ, July 13)

The goings-on in the United Kingdom provide another example. Employers in the UK are hiring people at the highest rate in more than six years. Plus, business and consumer spending are climbing swiftly -- at the fastest clip in a quarter of a century.

So, it wasn't surprising to see this June 18 CNBC headline:

Morgan Stanley picks the global stocks set to ride Europe's expected boom

However, here's what investors need to know: An economic boom follows an uptrend in the stock market, not the other way around. In other words, history shows that a booming economy may serve as a contrarian indicator.

Indeed, here's a chart and commentary from our July Global Market Perspective:

ConsumersConfident

The chart shows that consumer confidence in the European Union two months ago eclipsed the survey's pre-pandemic optimism from February 2020. Financial markets have traveled this territory before. In May 2020, GMP discussed two prior outbreaks of consumer overconfidence and noted that bear markets followed such sentiment. In the case of this survey, the all-time high came in May 2000.

The Stoxx 600 peaked in March of that year and fell 60% over the next 24 months. Consumer confidence peaked two months before the stock market's top in July 2007, and the Stoxx 600 declined 61% to March 2009.

Yes, consumer and business confidence might climb even higher. However, the point is: The "boom part of the cycle" appears to be in the "mature" zone. Another key takeaway is that many in the investment community see the economic upturn as a sign that the bull market in stocks will persist when history suggests just the opposite.

The best way to get a handle on the world's stock markets is to use the Elliott wave model, which reflects the repetitive patterns of investor psychology.

Follow the link below so you can prepare for major global financial shifts that will take most investors by surprise.

Our Global Analysts Research. You Invest.

50+ global markets at your fingertips, every month.

Our Global Market Perspective, which launched in 1990, is Elliott Wave International's second longest-in-print publication (bested only by Robert Prechter's Elliott Wave Theorist).

Here's what's behind GMP's longevity: It updates you on 50+ global markets (U.S. included) in one convenient monthly publication.

Chart after chart throughout 50+ pages, you see exactly what risks and opportunities GMP's 15 contributing analysts think are deserving of your attention right now.

Now thru August 6, you get these Elliott wave outlooks for global stocks, bitcoin + cryptos, FX, gold, oil, investor psychology and more free by joining our Global Market Perspective Gala FreePass Event.

Check it out by following the link below.

Why a Global Fund-Manager Favorite May Start to Flounder

Global fund managers have ramped up their equity allocation in a major region of the world that had formerly been a laggard. Those who are considering jumping on the bandwagon may want to review this chart first.

EXCLUSIVE

Inflation: Let TIPS Give You a Tip on What’s Next

TIPS, Treasury Inflation-Protected Securities, have an ETF named TIP. It just hit a new 52-week high after rising strongly since the start of the pandemic alongside the rising inflation fears. What can we learn about inflation's trajectory from here by looking at TIP's Elliott wave pattern? Our Interest Rates Pro Service editor explains.

USDJPY: Two Charts, Same Wave Pattern – and Same Forecast

You may have heard us say Elliott wave chart patterns are fractal -- meaning, smaller patterns make up larger ones. To understand how powerful this can be in forecasting, watch our Currency Pro Service editor walk you through the 2-week and daily charts of the Japanese yen, a big forex market.