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 MarketThoughts.com, 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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GE Misses and Consumer Confidence at 26-Year Low

General Electric Company (GE Charts) and The University of Michigan's consumer sentiment index woke the markets with a shocking one-two punch this morning. GE's stock fell over 11% in the first hour of trading while consumer confidence fell to the lowest level since March 1982!

GE shocked the market by missing its earnings estimate in a big way this AM (Press Release).

• GE revenue was up 8% to $42.24 billion from $39.20 billion, with global revenue up 22%


• Net income fell 6% to $4.3 billion, or 43¢ per share, from $4.57 billion, or 44¢ per share, a year ago. Analysts had expected 51¢ a share and GE had forecast profit of 50 to 53¢ per share.


• GE lowered earnings per share guidance for all of 2008 to $2.20 - 2.30, up 0 to 5% over 2007. Analysts were expecting GE would earn $2.43 for all of 2008.

Click graph courtesy of Bigcharts.com to view full sized

Jeff Immelt in the earnings conference call said:

• “Our primary shortfall was a decline in financial services earnings. We knew the first quarter was going to be challenging, but the extraordinary disruption in the capital markets in March affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments."


• "We are lowering our full-year EPS guidance to $2.20-2.30 from continuing operations reflecting growth of 0-5%. As a part of this guidance, we expect our industrial earnings to grow 10-15% and financial services earnings to decline 5-10%... Consistent with this range, our second quarter 2008 guidance is $.53-.55 EPS.”

Prior to today, GE was known for meeting its estimates every quarter.

Good news was total orders rose 8% in the period and that major equipment backlog jumped 41%, so it's not as if business just ground to a halt. Business outside the US was growing strong but that could slow if the recession in the US spreads to other economies.

Click graph courtesy of Stockcharts.com to view full sized

The University of Michigan's U.S. consumer sentiment index fell to 63.2 in April from 69.5 March. This is the lowest level since March 1982.

Click graph courtesy of Martin Capital to view full sized

In January we published "ECRI Says There Is A Window of Opportunity for the US Economy" where readers were asked to envision the economy as a large Roman stone column that had just started to topple. ECRI postulated that "prompt stimulus to boost consumer spending" could prevent the column from tipping over into a recession. With today's news from GE and the University of Michigan, we've heard two loud THUDS as two columns hit the dust.

Disclaimer. I personally own and recommended GE in "Kirk Lindstrom's Investment Newsletter" where I may buy and sell around a core position.

March Consumer Confidence Falls to Five Year Low

Worsening job prospects, rising prices, tight credit markets, a 20% decline in the stock market all contribute to drive March consumer confidence (press release) to a 5-year low. The Consumer Expectation index is at a 35-year low reaching levels not seen since December 1973 when the Oil Embargo and Watergate caused the expectations index hit to hit 45.2.

The director of the Conference Board's research center, Lynn Franco, said the latest index reading was the lowest since 61.4 in March 2003, just ahead of the U.S. invasion of Iraq.

• "Consumers' confidence in the state of the economy continues to fade and the Index remains at a five-year low (March 2003, 61.4). The decline in the Present Situation Index implies that the pace of growth in recent months has weakened even further. Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon. The Expectations Index, in fact, is now at a 35-year low (Dec. 1973, 45.2), levels not seen since the Oil Embargo and Watergate."

Chart courtesy of Martin Capital

Note that the last low was in March 2003.

March 2003 was the test of the October 2002 S&P500 bottom.

Chart courtesy of Stockcharts.com

Stock market bottoms don't happen when everyone is optimistic.

Some of us believe the recent weakness where the S&P500 traded in the mid 1200s may be a successful test of the January 22/23 low.

Back in 2002-2003 I had a stock, CACS, more than double between the October 2002 low and the March 2003 correction. CACS went on to be the top percentage gainer for the NASDAQ in 2003 at some 3500 percent.

This time I have VLNC that I accumulated over the past couple of years between $1 and $3. Using my sentiment indicators and my asset allocation and price targets, I sold some trading shares of VLNC at $1.97 on Oct 22, 2007. I bought them back at $1.64 in January 2008 and sold them at $2.49 while the rest of my shares in that stock are at about $4.40 now.

Given the very low consumer confidence, we could be seeing a similar buying opportunity now for the markets as we had in October 2002 and March 2003.

BTW, if anyone wants to see what my monthly newsletter sentiment update looks like, then check out this PDF file: "Take Profits & Sell Sentiment Indicators from The Market Top." The page of my newsletter is from last year with the markets near an all time high at 1540.

The S&P500 was at 1540 when I said take profits in my monthly newsletter shortly after we had all five of the indicators say BUY on a correction.

Unlike on October 19, 2007, I am NOT saying to sell or take profits now!!!

Subscribe to my newsletter NOW to see what I recommend today!

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