Confidence: How Wrong Could The Bears Be, From here?

It’s always easier to see a market bottom in the rear view mirror…

A subscriber responded to our post on consumer confidence with a few follow up questions regarding which data series tended to have the strongest correlation. I sent him a quick note along with consumer confidence charted vs. unemployment and told him that it seems that the strongest correlation was to employment, and that a bottom in confidence tends to lead the unemployment spike slightly –something of a tautology (most see the writing on the wall, know that layoffs are coming and stops spending before the pink slips actually arrive). In his follow up note he said that he expected “the stock market should in theory be acting similarly to prior periods entering recessions although w/more voracity this time b/c of housing”.

The part that I stumbled on was “acting similarly to prior periods entering recessions”. I charted confidence vs. unemployment since the Consumer Confidence Index was created in 1967 to arrive at a channel to gauge points of maximum pessimism. In the year following each of the five inflection points the S&P had positive returns. What’s more, four out of five realized double digit gains greater than 15%.

This is pretty intuitive stuff. From a market psychology standpoint, looking at the convergence of consumer pessimism and unemployment as an indicator may provide a valid rear view mirror indicator. In each of these historical periods an investor that took long positions in the quarter subsequent to improving confidence numbers was rewarded.

Andrew Barber
Director

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more