subject: The Us Consumer Confidence Index [print this page] This is more or less the 2nd worst level of US consumer confidence since records began in 1967. But fear not, contrary to popular opinion - this is actually very bullish for the long-term outlook for equities! Yesterday the Conference Board released its latest Consumer Confidence reading. First of all what is the CC Index?
This description comes from Wiki: The U.S. Consumer Confidence Index (CCI) is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. In the United States consumer confidence is issued monthly by The Conference Board, an independent economic research organization, and is based on 5,000 households.
The Consumer Confidence Index was started in 1967 and is benchmarked to 1985=100. This year was chosen because it was neither a peak nor a trough. The Index is calculated each month on the basis of a household survey of consumers' opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%. In the glossary on its website, The Conference Board defines the Consumer Confidence Survey as "a monthly report detailing consumer attitudes and buying intentions, with data available by age, income and region".
Now, remember the famous quote from John Templeton: "bull markets are born in pessimism, grow in skepticism, mature in optimism and die in euphoria" I have said on many occasions before that bear market lows in the stock market correspond to low levels of consumer optimism. Yes, contrary to popular belief low levels of consumer sentiment is a very bullish thing for the long-term outlook of the stock market. Note, that other than the GFC the last time consumer sentiment was this low was at the end of 1974.
And the end of 1974 marked the low of a nasty two-year bear market for the US stock market. I think the graph below clearly illustrates Templeton's quote........bull markets really do start in pessimism! It is very difficult to see any material downside from current levels in the Dow and S&P. Conference Board Consumer Confidence (top) and the S&P 500 (bottom)
I don't promise that this is the bottom of the sell-off, we will never know a bottom until well after the fact. But I sincerely think that long-term investors cannot go too far wrong by buying large cap stocks at current levels. And perhaps not just US large caps. Blue chip European stocks (particularly of the globally orientated German variety BMW, Bayer, BASF, Siemens, Daimler etc) are offering extreme value.
