Mark Hulbert: Main Street is struggling while Wall Street celebrates, and that spells trouble for stocks

by | Jul 27, 2023 | Stock Market

Wall Street is deluding itself that this week’s U.S. consumer confidence reading is great news. It actually is flashing warning signals. You have to look hard to detect those signals, since on the surface the latest news seems to be exceedingly good. Economists polled by the Wall Street Journal had on average predicted that the Conference Board’s Consumer Confidence Index (CCI) for July would be 112.0. It in fact came in at a surprisingly strong 117.0.

As I’ve written before, the index by itself is a poor leading indicator of the stock market. One way to transform the CCI into something with a creditable track record is to focus on the difference between it and the University of Michigan’s Consumer Sentiment Index (UMI). It’s a worrisome sign when the CCI is much higher than the UMI. Read: That stock market rally you’d expect from soaring consumer sentiment? It’s already happened. Now is one of those times. The spread between the two has actually widened over the last several months. The CCI has increased by 13.3 points since April’s reading, for example, while the UMI has increased 9.1 points. The spread therefore has grown 4.2 points; it now stands at the 98th percentile of the distribution since 1979, which is the first year for which monthly data for both indices began.

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