Why U.S. Consumers Hold the Cards to the Bull Rally

Why U.S. Consumers Hold the Cards to the Bull Rally

Just as the stunning stock turnaround this year is boosting investor confidence, a “critical variable” is now flashing warning signals—U.S. consumer confidence is starting to fall at rates not seen since the financial crisis. In a trillion-dollar economy where about 70% of activity is driven by consumption, that’s not a good sign and poses a major threat to the 10-year bull market. “If confidence erodes for even a few more months, we believe the entire U.S. recovery from mid-2009 will come to an end,” Leuthold Group’s chief investment officer Doug Ramsey told Business Insider.

Ramsey pointed out that the Present Situation Index fell in March by the most since 2008. The Index, based on consumers’ assessment of current business and labor market conditions and published by The Conference Board, declined by 7% between February and March. “[T]he overall trend in confidence has been softening since last summer, pointing to a moderation in economic growth,” wrote Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

What the Present Situation Index Is Telling Us

  • Fell in March by the most since 2008 financial crisis;
  • Measures overall consumer sentiment regarding the present economic situation;
  • Gauge is closely linked to stock performance;
  • S&P 500 returns firmly negative during periods where index is below moving average.

Source: Leuthold Group; Business Insider.

What It Means for Investors

Looking Ahead

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