The Consumer Confidence survey also measures what consumers think the stock market will do. This is essentially a sentiment survey for the stock market.
Consumers were bullish on the stock market from Trump’s election until this month. Whenever the stock market goes at least 1 year without consumers being bearish on the stock market, the stock market tends to go higher in the medium-long term (historically).
Here are the historical cases in which consumers became bearish on the stock market after being consistently bullish for at least 1 year.
- August 1990
- April 1994
- April 1997
- September 1998
- January 2001
- September 2005
- September 2015
Here’s what the U.S. stock market did next
This occurred near the bottom of the S&P 500’s “significant correction”. The S&P bottomed soon. The next “significant correction” began 3.5 years later in 1994.
This occurred after the S&P made a “significant correction”. The S&P swung sideways throughout the rest of 1994 before soaring in 1995.
The S&P rallied until it began a “significant correction” more than 1 year later in July 1998.
This occurred near the bottom of the S&P’s “significant correction”. The stock market rallied for another 1.5 years until the next bear market began in March 2000.
This occurred near the beginning of the 2000-2002 bear market.
The S&P rallied until the next bear market began 2.5 years later in October 2007.
This occurred near the bottom of the S&P’s “significant correction”. The S&P later retested this level in early-2016, but it didn’t go much lower.
You can see that this was usually a bullish sign for the stock market from a risk:reward perspective. The stock market sometimes fell a little more in the short term, but the medium-long term trend was UP.
The one bearish case – January 2001 – has 1 big similarity to today. Both cases occurred when the stock market’s valuation was very high. This historical case was very bearish.
I think the bullish and bearish cases cancel eachother out. This is neither bullish nor bearish for the stock market. I usually avoid sentiment-related indicators.
Read Stocks on April 28-29: weekend outlook