Consumer Confidence Falls – AAPL Earnings Coming

Today the market is down again slightly, while the VIX is up again. This sell-off isn’t enough to change the paradigm that the market is overvalued. It feels worse than it is because of the endless rally we’ve seen. It has been 149 days since the last time the S&P 500 corrected 5%. The longest streak without a 5% correction in this bull market was 158 days. We’re approaching being in the least volatile period of what has been the second longest bull market in history. It’s shocking to see such a calm period in such a turbulent political environment.

Today the Conference Board Consumer Index was released. I have been using it as an indicator which needs to be faded. My response to the consumer sentiment depends on the point in the cycle. At the end of a recession, the lower sentiment gets, the better the buying opportunity. At the end of a bull market, the higher it gets, the more bearish I get. In the last article, 110 was used as a measuring stick for when it becomes a reversal indicator. However, when the bull market is young, increased sentiment is a positive because it shows the recovery is intact.

Across the board, the survey showed consumers seeing current conditions improving, while lowering their expectations for the future. The overall index fell from 113.3 in December to 111.8 in January. The Present Situation Index went up from 123.5 to 129.7, while the Expectations Index fell from 106.4 to 99.8. The excitement in November and December appears to have been a self-fulfilling prophecy which helped the economy. There was a decent amount hiring and inventory being built in anticipation of the economic growth in 2017 brought by Trump. Enthusiasm isn’t a building block for long term growth. The only thing which can sustain this growth is if demand matches or exceeds the production. That’s when the pedal hits the metal.

There may be some regret by businesses that they hired all those people and produced all that inventory which may be why future expectations are dropping so fast. Consumers’ net expectations for business conditions (improve minus worsen) declined 3.4 points. Consumers’ net expectations for the labor market (more jobs minus fewer jobs) fell 1.9 points. Finally, net expectations for incomes (increase minus decrease) fell 4.5 points.