Is 15-Year High in Consumer Confidence Bullish for Stocks?
Consumer sentiment measures may serve as a contrarian indicator
by Bob Stokes
Updated: May 21, 2019
This may sound shocking, but: Investors who are interested in what's happening in the stock market now, and what will happen in the future, can ignore consumer confidence numbers.
Or, certainly ignore their conventional interpretation.
The reason why is that consumer's expectations about the economy, and the actual performance of the economy, lag the stock market.
In other words, today's sentiment measures reflect what has already unfolded in the stock market.
By the time consumer's expectations reach a historical low or high, the stock market's current trend may be nearing an end and on the cusp of a turn.
So, extreme consumer sentiment measures often serve as a contrarian indicator.
However, many in the mainstream media see sentiment measures as the "cause" of the stock market's present action.
When the announcement was made on May 17 that "U.S. consumer sentiment hits highest level in 15 years" (WSJ), a number of headlines attributed the U.S. stock market's intraday rise to the news.
Here's just one example (France 24, May 17):
US stocks boosted by strong consumer data
As you may know, stocks reversed by the end of the trading day. So much for the "boost."
Indeed, consider another time when strong consumer data was released.
Our March 2007 Elliott Wave Financial Forecast noted:
Consumer confidence just hit 112.50, its highest reading since August 2001.
Keep in mind that stocks had been rising since 2003, so the prevailing mood was positive.
However, the upbeat consumer data in early 2007 did not predict continued positive action in the stock market.
Far from it -- 2007 turned out to be the start of the 2007-2009 financial crisis, the worst since the Great Depression.
Here's what you need to know right now: Historically high consumer confidence is only one sign of an extreme in financial optimism.
The February Elliott Wave Financial Forecast referred to a "string of all-time extreme readings of optimism among sentiment indicators."
And, now, the May Elliott Wave Financial Forecast adds another one to the list, which involves overseas buyers of U.S. shares. You'll want to see the chart the May Elliott Wave Financial Forecast presents.
You can do so through an instant-access, risk-free trial. Learn more just below.
True or False? “Most Investors are on the WRONG SIDE of major market turns”
Here's why: The news is always negative at major bottoms -- and positive at major tops.
Hence, many investors expect the negative news to lead to even lower prices, and positive news to lead to even higher prices.
BUT -- the news is not an indicator of future prices -- it's a reflection of of the past.
Put yourself on the RIGHT SIDE of the stock market's trend by learning what our Elliiott wave experts are saying.
Find out more by reading below …
Your Financial Forecast Service Team Helps Put YOU in Control of the Market’s Trends and Turns
Your Financial Forecast Service guides -- three of the best-known market analysts in the world:
- 1. Robert Prechter, Author of 16 market-related books, New York Times Best-Selling Author and Editor of Elliott Wave Theorist
- 2. Steven Hochberg, Editor of the Short Term Update and Co-editor of The Elliott Wave Financial Forecast
- 3. Peter Kendall, Author of The Mania Chronicles and Co-editor of The Elliott Wave Financial Forecast
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