What’s Wrong with this Picture?
By Walter Kurtz, Sober Look
January US consumer confidence from the Conference Board came in materially below consensus today.
Reuters: – Consumer confidence dropped in January to its lowest level in more than a year as Americans were more pessimistic about the economic outlook and their financial prospects, according to a private sector report released on Tuesday.
The Conference Board, an industry group, said its index of consumer attitudes fell to 58.6 from an upwardly revised 66.7 in December, falling short of economists’ expectations for 64. It was the lowest level since November 2011.
At the same time US equity markets continue to march higher. In fact the divergence between consumer sentiment and the stock market has become quite pronounced and is unlikely to be sustainable over the longer term. Ultimately, weak sentiment will result in lower sales.
S&P500 index is adjusted for dividends (total return)
34 Comments
Add this warning to the 4 warding signs from Dave Rosenberg. Market is getting frothy on the upside without miuch support from fundamentals, and in contrast to consumer sentiment and tepid consumer spending in December. Wait till we see how the payroll tax increase impacts future consumer spending. This rally’s days are numbered. When it turns, it may turn quite sharply.
fundamentals havn’t been working for the past 5y
Not warDing, but warning signs. sorry
The consumer confidence index could change direction instead of the market.
Amazon’s earnings release said it all……
Where is the general 10% pull back from these types of runs?
Won’t happen until after January, then all bets/risk off.
The retail investor piling in is a BIG sell signal for me.
Personally, I have not been in this market run up for the last year as I have used my cash positions to reallocate towards brick and mortar job creating small biz locally (Just created another part time position.. YEA!!).
I do however have a few shekels I can put into the market place in order to start the proverbial 10% correction.
So every one, just let me know when you want the mkt to drop, and I will take care of it for you. I will just Go Long the Russel or S&P.
That should get the downward ball rolling.
You will be surprised but the recovering in euro zone might carry US economy in 2013. It’s a global economy. Don’t look just at US consumer sentiment.
So far there is no recovery in the euro zone. In fact things are slowly getting worse, and the stron euro will only compound the problems.
The incredibly strong Euro is something I don’t understand at all. Just seems that whenever we have “risk on”, the euro seems to go up along with equities. Not sure why. Can anyone please explain this??
IMHO, a combination of “reaching for yield” and capital flows as Euro banks pull back from foreign currency lending. There has been a strong wave of institutional buying in Euro bonds after Draghi’s explicit ECB backstop. Institutions need to hit their marks and if Draghi is going to “do whatever it takes” then Euro bonds are an attractive way to get there. Also, Euro banks have been pulling back from foreign lending, which puts a pretty steady bid under the Euro as they reconvert.
@Mountaineer, thanks. That makes sense to me.
Larry,
Mr. Mosler has some interesting thoughts on the Euro. I won’t link to his site out of respect for Cullen, but I believe the gist of his argument is that austerity is making Euros “harder to get”, which drives the price up.
@Geoff, With all due respect to Mr. Mosler, I find it hard to buy his argument. I think it is the interest rate differential between Italian gov bonds vs. US Treas bonds. Very big money institutions are betting on Mr. Draghi’s ECB will backstop them on a much higher-yielding Italian bond, or Spanish bond, instead of holding low-yielding US T-bonds. They perceive that the water is safe for the time being, and hedge funds & investment banks will take the risk of peripheral bonds for now. If hell breaks out in Europe later, there will be a stampede in the opposite direction.
which planet are you on ..Europe is the no growth continent
Recovery in the Euro-zone? Things are getting worse, not better …
Consumers will get happy when the Dow goes over 14K, right ?
Could it be the impact of the FICA hit to paycheks before it shows up in the high frequency data and gets refelcted in the equity market?
A sale of some calls might not be a bad thing..
I am NOT surprised. keywords: hihger taxes.
- Obamacare tax.
- Higher Social Security tax (back to the 2009 level).
- State taxes have risen.
- Deductions will be cut for the income year 2013
In other words: “Take home pay” was reduced in january 2013. No wonder sentiment is down. When will the markets tank ?
“In other words: “Take home pay” was reduced in January 2013. No wonder sentiment is down. When will the markets tank?”
The strange thing is that many who saw their taxes go up in 2013 were actually shocked their paychecks were lower. Just wait until they get even more taken from them. After all, it was only supposed to happen to the rich. Add to your list higher taxes on businesses – even though businesses don’t really pay taxes, we know who is ultimately affected.
Evidently our deficit spend in Q4 was not large enough to keep the US nose and mouth above the water line. That can be fixed. Print and release.
http://ibankcoin.com/flyblog/2013/01/30/ignore-horrendous-gdp-numbers/ Don’t know if I agree but interesting
Michael Schofield….
It is The Fly, have you never read him before? It is entirely tongue-in-cheek frivolous stuff. Not to be taken seriously.
Like most online pundits really.
I don’t know about the meaningless or priced in parts but the market is ignoring the gdp report. Not so bad once you read it. And I’m having some second thoughts about middle class significance. IMO he made some good points wheather he meant to or not. That can be hard to tell with him…fwiw
A two-track economy might be developing. For the unemployed and underemployed, permanant recession, but government keeps them alive and provides money for necessities and fancy phones). Meanwhile the working economy hums ahead on deficit spending and the global growth path.
Somebody suggested we have inflation numbers that reflect your station in life — maybe we need to have GDP numbers that do the same.
For the top 1 percent — asset inflation and easy money means 10 pct GDP growth.
For the bottom 20 perent — wage deflation means negative growth.
Revolution to follow.
Wouldn’t pay much attention to consumer confidence reports. At best a coincident indicator. Basically, questions to consumers about expectations of future. But they are replying based on today’s economic conditions. Doesn’t tell much going forward.
ummm… spending?
I just throw out the consumer confidence indicators and look directly at consumer spending. 2 months of slowing consumer spending spells trouble. Just don’t trust 1,000 person surveys with a bunch of hypothetical questions. Just monitor personal consumption expenditures. Just what I do but the two are not exactly correlated. PCE numbers are a better recession predictor if you had to choose. Just my personal method.
It is pretty easy to see what leads- S&P 500. This is not a scary chart.
On this topic, a financial planner sent me a January 2012 study titled, “Sensitivity of consumer confidence to stock markets’ meltdowns.”
I have not read through it completely but in its summary it states:
“Research
shows that, although changes in stock market prices and changes in consumer confidence are
contemporaneously correlated, typically changes in stock markets Granger-cause changes in
consumer confidence, and not vice versa. 2 Indeed, there is very little evidence that consumer
confidence impacts on the formation of stock market returns.3″
As the saying goes, when the consumer is feeling confident, she shops. When she’s feeling bad, she shops some more
And when her credit card is maxed out, she transfers balance..
Who is Mr. Kurtz who wrote the article?
Is he blind? Historically challenged?
The chart clearly shows the red line leading the blue line both up and down….
Historically, buying stocks when consumer confidence tanks is very profitable.
What is wrong is the timescale: take it back to 1990 and there is no link whatsoever…