Consumer Confidence Data Puts Stocks in the Black
Today’s consumer confidence data has put the stock market in the black today. They aren’t really rallying, but they are at least gaining. For the moment, consumer confidence data appears to be overcoming concerns over swine flu and bank stress tests. Even worries about whether swine flu will restrict global trade, and concerns that bank stress tests will reveal deep problems in the financial sector, are still present, they are being negated by optimism from consumer confidence reports.
Why does consumer confidence matter to the stock market?
Many people wonder what consumer confidence has to do with helping the stock market. After all, does it really matter what ordinary people are doing with their money? It does. In reality, about two-thirds of the American economy is built on consumer spending. People need to be spending money in order to support our economy in its present form.
Another thing to consider is this: When people are spending money, it means that companies are making money. Positive earnings — the bigger the profits, the better — mean better stock prices. And better stock prices mean a higher stock market. The fact that today’s consumer confidence data came in much higher than expected is good news for the stock market, since it means that people are ready to start spending more money.
Swine flu and stress tests could overwhelm consumer confidence
As important as consumer confidence is, however, it is not the be all and end all. The stock market rises and falls as perceptions change and investor confidence cycles. While consumer confidence has the upper hand at this moment, things could change as investors re-evaluate the situation. If swine flu reaches true pandemic status, it could send the stock market in a tailspin. Likewise, if bank stress test show us a financial sector in ruin and with little to bolster it, investor confidence could plummet, taking the stock market with it.
It’s a delicate game, and the fact that anything could effect the stock market in unexpected ways is one of the reasons that many people stay away from stock picking and timing the market.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
