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Thursday, June 26, 2008

Consumer Confidence Vs Dow Jones Industrial Average (DJIA)

Consumer Confidence as measured by the Conference Board Consumer Confidence Index fell again in June. The Consumer Expectations Index fell to an all-time low! (Press Release)

Lynn Franco, Director of The Conference Board Consumer Research Center said:
"This month's Consumer Confidence Index is the fifth lowest reading ever. Consumers' assessment of present-day conditions continues to grow more negative and suggests the economy remains stuck in low gear. Looking ahead, consumers' economic outlook is so bleak that the Expectations Index has reached a new all-time low. Perhaps the silver lining to this otherwise dismal report is that Consumer Confidence may be nearing a bottom."
This chart, courtesy of MartinCapital, shows Consumer Confidence graphed 30 years back to 1978 can be compared to the chart of the DJIA below back to 1978.

The lowest level was in early 1992.

Click charts to see full sized images.

Note how 1992 was a great time to buy stocks, especially Citibank (C) which faced similar troubles then as it does now.

Here is a chart, courtesy of Henry To of, showing the Conference Board's Consumer Confidence Index and the Dow Jones Industrial Average (More DOW Charts) back to 1981 all on one graph.

All the graphs show that the DJIA has made significant gains in the years that follow very low consumer confidence. The question investors are asking now is "Can things continue to get worse or is this a bottom?"

The recent plunge in the stock markets indicate investors are little more optimistic about the stock market than consumers are optimistic about the future. I have started to nibble again with funds from profit taking when the markets were higher and may add more given a successful test of the lows.

Disclaimer: I purchased Citi (C) for my newsletter "explore portfolio" back in 1998, took profits and traded its volatility over the years for added return when it was up so I am on "house money." I have started to buy shares again but my most recent purchase is in the red. I have a plan to buy more if certain conditions are met.

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