Stock Market Insights: Low consumer confidence

DR. RICHARD BAKER, AIF®, is the founder of and an executive wealth advisor at Fervent Wealth Management.https://www.facebook.com/Dr.RichardBaker

"I could die if I don’t make this jump” My high school buddy Shawn and I had been walking the railing on the old bridge in our hometown and were about to jump off the railing to a small peaked concrete roof. A few feet from the bridge and in the center of the river, there was a 40-foottall concrete structure that looked like the Washington Monument. No one should ever jump from the bridge and try to land on the peaked roof. If you were going to try to do it, you would need a lot of confidence. Confidence is important, whether jumping off bridges or investing. Right now, consumer confidence is low.

The Conference Board recently reported that consumer confidence (Americans’ comfort level about the economy) dropped in April to its lowest level in almost a year. So it seems Americans have concerns about the economy and their paychecks.

When consumer confidence drops, it often means they will slow down on buying big-ticket items such as homes, autos and appliances which could lead to a recession. But investors might be encouraged by the market’s history when consumers get discouraged.

JPMorgan released a recent report showing the history of stocks in relation to consumer confidence going back to 1971. During that time, there were eight times when consumer confidence hit a low. Interestingly, stocks were up an average of nearly 25% in the 12 months following that consumer confidence low. This points out that getting out of the market when confidence is low can be a poor investment strategy.

I’m not saying we aren’t going to have difficult market times this year, but I am saying it won’t be the norm. Remember, the market is doing what the market does. So stick to your plan because LPL Research still thinks stocks (S&P 500) will end this year at 4,300–4,400 or 5-7% higher than at the time of this writing.

Maybe my buddy and I were a little too confident. We both jumped and miraculously didn’t fall into the shallow river forty feet below. My overconfidence in my younger years gave my mother grey hair and wore out my guardian angel. I do not recommend jumping off of perfectly good bridges or making knee-jerk decisions that could hurt you physically or financially. Don’t jump.

Have a blessed week!

www.FerventWM.com