Yesterday, Mark Hulbert of Hulbert Financial Digest posted an interesting analysis of the contrarian nature of Consumer Confidence. The gist of his argument is that Consumer Confidence is at its highest at market tops and at its lowest at market bottoms. While stopping short of calling for a market reversal, Hulbert suggests this is another reason for investors and traders to exercise caution. We agree.
While it seems counter intuitive, the analysis makes sense. The average consumer feels best (and most brilliant) when his stock portfolio has been moving higher for awhile, the value of his home is high (or at least above his mortgage balance) and he thinks his job is safe. On the other hand, when the stock market has been falling for what seems forever… his home mortgage is under water… and his company just announced yet another round of layoffs, Average Joe won’t be reporting excessive confidence.
Is this the precursor to the big summer swoon everyone seems to be awaiting? Who knows? This market has defied more than a couple of “norms,” so treat all truisms subject.
Still, it’s interesting to consider…