Monthly Brief June 2019 – Consumer Confidence

Monthly Brief June 2019 – Consumer Confidence


How do we best describe the first half of 2019?  Has the jump in equity markets provided a strong start to 2019?  Or have we returned to the range we first tested in early 2018?  Beyond US large-cap stocks, have investors had the same experience? Has the market moved because of improvement in economic and corporate fundamentals, or has it been sentiment and policy driven? 

While the equity advance in 2019 has registered impressive year-to-date returns, a broader perspective suggests that the US market, as represented by the S&P 500 Index, has moved to reclaim highs established over the past 18 months.  The new high in mid-June 2019 was just 2.8% higher than the highs reached in January 2018 and less than 1% higher than the September 2018 high point.  Certainly, the advance off the December 2018 bottom may unfold to be a catalyst for the next leg higher in equity markets, but it will require careful watching to avoid the trap of another reversal. 

Investors’ confidence in further gains would certainly be bolstered if the broader global markets were also rallying.  Yet US small-cap stocks, developed international markets and emerging markets have all lagged and remain well below prior highs.  What is the message this divergence is sending?

To date, one can make the argument that the global capital markets’ have been driven much more so by news-flow trading than by fundamental investing, with the main culprits having been trade negotiations and central bank policy.  One needs only to look back over the past 18 months to see several sharp reversals, many of which are tied to “news” items regarding US trade with China or deciphering what the comments and actions of the Federal Reserve suggest for the future.

While we can’t dismiss the market action year-to-date, confidence in adding risk to portfolios with further equity market gains in mind, would certainly be higher should economic strength and corporate earnings growth corroborate higher equity markets ahead.  But the weight of the evidence continues to point towards slowing economic growth and lackluster earnings gains.  And this points to further vulnerability to news-driven volatility across the global capital markets.


Investor sentiment can be a powerful force in the capital markets. Enthusiastic investors will typically push prices higher, while caution/concern can often result in flattening or falling asset prices.  One popular measure of investor sentiment is the Conference Board’s survey of the sentiment of households, typically referred to within the media as the “Consumer Confidence Survey”. 

Its intuitive that consumer confidence, or sentiment, can impact investors’ appetite for risk-taking.  And this survey shows the tight directional relationship between consumer sentiment and the equity markets (as represented by the S&P 500 Index).  While the relationship is far from a perfect indicator, it is informative.  In some cases, it appears that sentiment has led to a change in the market’s direction and other times the change in the market’s direction has impacted sentiment. But, regardless of which one leads, it is helpful to know how the Consumer Confidence Survey is trending as one piece of evidence to understand what may lie ahead for the markets.  Currently, the relationship suggests caution by consumers year-to-date, despite the bounce in the S&P 500 Index from its late 2018 lows.  While this is not enough evidence on its own, history suggests that the probability of further gains in the equity markets are somewhat tempered by 2019’s modest decline in this survey’s measure of consumer’s sentiment.

James Ferrin, CFA
Chief Investment Officer

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