Based on data collected through February 15, the most recent Conference Board Consumer Confidence Index was released on February 27, 2018. “Consumer confidence improved to its highest level since 2000 (Nov. 2000, 132.6) after a modest increase in January,” said Lynn Franco, Director of Economic Indicators at The Conference Board. Franco went on to say, “Consumers’ assessment of current conditions was more favorable this month, with the labor force the main driver. Despite the recent stock market volatility, consumers expressed greater optimism about short-term prospects for business and labor market conditions, as well as their financial prospects. Overall, consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”
I asked my 10-year-old grand-niece who is fond of math to study this chart and tell me what she thought was next. She said, “It looks like it could be danger ahead to me.” I agree.
We know we shouldn’t judge a book by its cover, but we do. We know we should study the data for a while before jumping to conclusions, but we are too busy gushing over the ‘good news.’
When consumer confidence is high many investors agree that the stock market melt up is in full swing. However, Mark Hulbert at MarketWatch on March 20, 2018 opines, “I found that consumer confidence is a meaningful contrarian indicator in the stock market. Like other sentiment indicators, consumer confidence tends to rise and fall along with the stock market itself. Accordingly, consumers are most confident at market tops (bold added), just as they are most pessimistic at market bottoms.” Hulbert asserts what many consider to be a bullish indicator is actually a market warning sign. In fact, he suggests, “It’s time to lighten up on stocks and build up cash.”
That may be a perfect thing to add to the list of things to do for the do-it-yourself investor. For those who realize they are too busy to sell in some random fashion, let alone know when in advance to get back in, now is the time to investigate active management strategies. Since, according to me, it’s not about the prediction, it’s all about the preparation, ask your financial advisor to show you or kick the tires at the investment management firms that have shown capability with moving out of risk assets to cash instruments or alternatives in a bad year and purposefully moved back into risk assets, like bond and or stock accounts in a good year. Savvy investors are like tennis players, you have to play both sides of the net.
Investors hate losses more than they like gains. Harry Dent, Dent Research charts two possibilities. The bearish scenario is that a market top was made on January 26. The bullish outcome may be a result of a DOW top around 28,000.
“The markets have been very tricky in this final orgasmic bubble, especially since the Trump win in early November 2016. Unless the market quickly reverses and breaks through the upper trend-line of this ‘Pennant Pattern’, then the direction is very likely down,” said Harry Dent on March 19, 2018.
It’s impossible to see the future. So let’s speak hypothetically about the ridiculous. I mean, who told you in 2007 that something you never heard of before, like credit default swaps could possibly end life as you know it on this planet. It is also worth noting the Nasdaq -80% loss in the 2000-02 tech wreck that took 15 long years to fully recover, submits Adam Shell, USA TODAY, April 23, 2015. It’s all about the preparation.
Look to see if the DOW breaks to the upside above 24,000 or breaks below that level. It may be that the DOW rallies to 29,000 this year. From either level it may be that an initial crash of about -40% occurs. Then we may wonder, how low could it go? Is it possible you can address the problem before it happens? You know consumer confidence will drop. What is in your control is assessing how much risk you are willing to take. In fact, you can determine now how much loss you are willing to accept. When disaster strikes there is no time to plan. And after the grits hit the pan there may not be enough time to recover. So take the time now to see what you can do to limit your losses. You are going to need all of the money.
The proof is in the planning™
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