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A Strong Warning To U.S. Consumers… From U.S. Consumers

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A popular sentiment indicator takes a nosedive

Much is made of the relationship between Wall Street and Main Street, between consumers and investors.  Of course, some of us are both consumers and investors. But consumer behavior does have an impact on investment market behavior, often with a laggard effect.  Based on the latest monthly reading of the Michigan U.S. Consumer Sentiment Index, the consumer side of the relationship is suddenly unhappy.  And based on history, it is not too likely to snap out of its funk soon.  That likely works its way into the stock market, which has started 2019 as if the fourth quarter of 2018 never happened.

You see, the past three U.S. recessions were foreshadowed by a steep, sudden drop in consumer sentiment.  You can see it in the gray shaded areas above.  That is what makes the plunge in that sentiment indicator such a big deal.  Here is a shorter-term view so you can see it better.

Sure, it’s just one month.  But dropping from nearly 100 to nearly 90 is a very uncommon occurrence.  We can speculate as to why, and dig into the details of it, but as a strategist I will simply say this: consumers have been showing waning enthusiasm for a little while now, and if past trends repeat, a recession is on the way.

Related: 2018 Was A Stock Market Crash Test: Don’t Be A Dummy

As for investors, they should care less about a recession itself, and more about the concerns of one potentially happening.  The stock market is a forward-looking beast, and so a year 2020 recession is less relevant than the 2019 bear market that would likely precede it.  The bottom-line: plan accordingly and stay aware of what consumers are doing and saying as part of the puzzle.  After all, consumer spending is about 70% of the U.S. economy’s size.

#Bearmarket #S&P #Crash #2018 #Stockmarket #Recession

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