Skip to main content

Sound Advice: July 13, 2022

The markets reflect changes in consumer confidence 

Investors always look to the future.  When prospects are bright, they look far ahead.  When times are problematic, it often seems like they’ve swapped their telescopes for microscopes.  And, not surprisingly, what takes place during more troublesome periods is increased stock price fluctuation. At those times, confusion reigns the day and thoughts about what lies ahead run the gamut from “Everything will be OK” to “It’s the end of the world”.

Since the start of the current millennium, weakness in the monthly Consumer Confidence Index (CCI) has always been accompanied by pullbacks in the U.S. stock market.  As the dot.com debacle began to unfold in late 2001 when companies with “brilliant concepts” but no profits fell by the wayside, the CCI plunged 28.6%.  At the same time, the S&P 500 Index dropped 6.9%.

There was much more to come from the Summer of 2002 to the Spring of 2003.  Over that span, the downward spiral in the CCI accelerated, with a loss of 44.3%.  In recognition of that change, the S&P went down 20.5%.

The biggest swing of all in the CCI took place during the banking crisis of 2007-8.  As the financial world was in a frenzy about the possibility of a collapse in the banking system, the CCI nosedived by 55.0% while the S&P slipped by 6.5%.

So here we are a decade and a half later and the CCI is again on a downslope, having fallen by 14.3% since the beginning of this year.  Unlike earlier periods, when the market drop had been smaller than the reduction in the confidence index, this year the situation reversed itself.  The fall in the S&P has been a third greater than that of the confidence index.

Why the bigger reaction this time?  Probably thanks to combination of factors, including continuation of the pandemic, the conflict in Ukraine, and hyperinflation.  And let’s not forget the possibility of economic recession, which may already be under way. 

Three months ago, it appeared that the economy was still growing, but the actual numbers showed that the Gross Domestic Product had shrunk during the first calendar quarter.  For the second quarter, forecasters are again looking for a modest gain, but the actual numbers may show another dip.  If so, that would meet the definition of recession.

Markets always go down on the way into a recession.  And then recover.  Once the market averages reach bear territory, a loss of 20% or more, the path of least resistance is up.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

www.soundasset.com

www.soundasset.blogspot.com

Any questions?  Please contact me at nrwayne@soundasset.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...
Post a Comment
Read more

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...
Post a Comment
Read more