Focus on Consumers as Household Pessimism Increases

A fewer weeks ago, I covered the Investors Intelligence (II) sentiment survey and noted that utmost bullishness from published banal marketplace newsletters has historically been followed by marketplace underperformance.

This week, I’m diving into yet different sentiment survey, though this 1 is precise different: the Conference Board Consumer Confidence Index (CCI). Unlike the II, which takes a person look astatine published newsletters, the CCI surveys households astir existent and aboriginal economical conditions, focusing connected jobs and income expectations.

In this article, I analyse however the marketplace has performed erstwhile households, arsenic reflected successful the CCI, are this pessimistic, contempt the banal marketplace being adjacent all-time highs for overmuch of the past respective months.

When the January CCI fig was initially released, it came successful astatine 84.5, the lowest speechmaking since 2014. In the astir caller report, however, that speechmaking was revised up to 89.0. As you tin spot from the illustration above, it’s nary longer the lowest since 2014, but it’s inactive debased historically.

To make an indicator utilizing the monthly CCI data, I recovered times that the CCI was astatine slightest 6% beneath its mean of the past 12 months, portion the S&P 500 Index (SPX) was trading adjacent a 52-week high. Specifically for the SPX, its 52-week terms scope was supra 90% (where its debased is 0% and precocious is 100%). The CCI information goes backmost to 1967. The array beneath shows the January lawsuit was the 14th time we’ve seen this signal.

The SPX returns look bullish successful the mean word (three to six months), with the scale averaging a 6.06% instrumentality successful the adjacent six months, with 92% of the returns positive. The emblematic six-month instrumentality for the scale since 1970, the twelvemonth of the archetypal signal, was 4.66%, with 71% positive.

Over the adjacent twelvemonth aft a signal, the benchmark averaged a instrumentality of 7.82% with 83% of returns positive. That mean instrumentality is somewhat little than mean (9.46%), but the percent affirmative is higher than mean (76%).

As we’ve seen recently, with the immense spending connected information centers owed to grooming AI models, it mightiness not ever beryllium consumers driving the banal market. The XLY is an ETF focused connected companies delicate to user discretionary spending. Therefore, the CCI mightiness beryllium a amended indicator for the XLY, alternatively than the SPX. For the array below, I recovered times that the XLY was astatine 90% oregon amended successful its 52-week trading range, portion the CCI was 6% oregon much beneath its 12-month average. Again, this occurred successful January.

The XLY information goes backmost to 1999. The archetypal awesome occurred successful 2001, and the caller awesome was the 5th clip we’ve seen it. Over the adjacent six months, the XLY averaged a instrumentality of astir 14% with 3 of the 4 positive. The scale bushed the SPX implicit the adjacent six months each 4 times.