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Consumer Confidence Plunges Most In 2 Years

Tyler Durden's picture




 

Following the lowest UMich confidence print in 2013, Gallup's economic confidence collapse, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Conference Board Consumer Confidence data  continues to confirm a problem for all those 'hoping' for moar multiple expansion. From 80.2 in September, confidence collapsed to 71.2 (the largest MoM drop in 2 years) to its lowest in six months, and notably below expectations. As we have noted in the past a 10 point drop in confidence has historically led to a 2x multiple compression in stocks (which suggests the Fed will need to un-Taper some more to keep the dream alive). Hope for the future dropped to 7-month lows but what is perhaps most intriguiging, just as with the Bloomberg surveys, we are seeing the wealthiest cohorts confidence plunging (even as stocks soar to new highs). It would appear the Fed has lost its wealth effect inpiration.

 

 

Once again we remind that it's all about confidence and hope appears to be fading...

As we have noted previously - this move in confidence is key...

But, it's all about confidence... investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable... And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels...

 

 

 

and the cycle appears to be shifting...

Via Citi,

Is consumer confidence set to turn?

Consumer Confidence is once again following a dynamic where we see it move higher for 4 years and 4 months before beginning to collapse

  • Moves higher from 1996-2000 with a smaller dip halfway through in October 1998
  • Moves higher from 2003-2007 with a smaller dip hallway through in October 2005
  • Moves higher and so far tops out in June 2013. Also sees a small dip halfway through in October 2011.

 

Higher yields do not help confidence...

 

A sharp rise in mortgage rates has a negative feedback loop to consumer confidence. For those families and individuals that were now looking/able to enter the housing market, the recent spike in rates acts as a headwind.

 

In addition to the economic backdrop, there is plenty of tail risk as we head into the end of the year. Oil prices have been rising since the summer began (and in reality since the Summer of 2012), partially due to geopolitical risks which are very much “top of mind.” A bigger spike due to a supply shock would choke the economic recovery.(In our view)

In the US, the appointment of a new Fed Chairman and the upcoming budget/debt ceiling debates are likely to bring added volatility. Tapering itself can also induce concern as the “Bernanke put” is being removed from markets.

In Europe, many of the structural problems related to the single currency union have not actually been addressed and the peripheral countries could still create turmoil going forward (see Fixed Income section focusing on Italy in particular for more on this). There has also been little concern with both the German elections and the German Court decision on the constitutionality of the OMT program. A surprise in either of these could be cause for concern.

Emerging Markets are still not out of the woods yet as growth has been weak relative to expectations and countries with current account deficits are beginning to feel pressure in their FX and Bond markets. This is an issue we believe is only starting to develop which we will continue to expand on at later dates.(We have also looked at this in our EM FX section this week)

Overall, the weak economic backdrop, poor housing recovery and potential for tail risk events over the next few months suggest that we have topped out in Consumer Confidence, a warning sign for equity markets.

 

The relationship between Consumer Confidence is clear, and IF June did mark the high and Confidence continues to decline, then we would expect to see that translate to weakness in the equity markets. The removal of the “Bernanke put” only adds to this concern.

A major turn has taken place in equity markets on average four months after Consumer Confidence turns, which would point to a decline beginning around September-October. As we have previously expressed, we remain of the bias that a correction in equity markets on the order of 20%+ is likely this year/ into 2014 and the current dynamics support such a move.

Should we see a decline of that magnitude, it is almost certain that yields would move lower in a rush to safe assets.

 

 

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Tue, 10/29/2013 - 10:14 | 4101167 Zer0head
Zer0head's picture
worth repeating

 

 

Guest Post: A Tale of Two Charts: Are We 2007 America Or 2006 Zimbabwe?

 

http://www.zerohedge.com/news/2013-10-25/guest-post-tale-two-charts-are-...

Tue, 10/29/2013 - 10:15 | 4101175 camaro68ss
camaro68ss's picture

Awww yesss, give me another hit of that QE. O yeah, that's some good shit..... I need moar

Tue, 10/29/2013 - 10:29 | 4101239 SheepDog-One
SheepDog-One's picture

Another face full of the QE cotton candy and this obese kid is going down in convulsions!

Tue, 10/29/2013 - 10:38 | 4101276 max2205
max2205's picture

Are you telling me that you believe that these numbers are not manufactured? 

Tue, 10/29/2013 - 10:44 | 4101295 aint no fortuna...
aint no fortunate son's picture

Time for the FED to run another Toga Party!

TOGA! TOGA! TOGA!

Tue, 10/29/2013 - 11:03 | 4101385 Popo
Popo's picture

Typical sensationalist BS. Consumer confidence is very near its decade HIGHS. So it's volatile up here at the top. Calling this a negative consumer sentiment is just misrepresentation of the data.

Tue, 10/29/2013 - 11:12 | 4101402 CH1
CH1's picture

Are we believing gubbermint numbers now?

(Yes, I know it's UM, but do we really think they aren't eager to please their masters?)

Tue, 10/29/2013 - 10:21 | 4101190 Ying-Yang
Ying-Yang's picture

"we are seeing the wealthiest cohorts confidence plunging"

Damn... there goes Trickle Down

and no MDB this does not mean trickling down your leg.


Tue, 10/29/2013 - 18:03 | 4102922 dreadnaught
dreadnaught's picture

yeah...."A rising tide lifts all boats"-Reagan?   yeah....except when the boats have holes in them or are rotten (middle class)

Tue, 10/29/2013 - 10:31 | 4101242 SAT 800
SAT 800's picture

But not as much as it's going to plunge in the next two ! OH no. This year is going to look like a picnic.

Tue, 10/29/2013 - 10:45 | 4101302 steelhead23
steelhead23's picture

The basic message of that linked post is that the market is overbought and its time to short the market.  Well, maybe.  Let us not forget that we are well down the rabbit hole and the hookah smoking caterpiller (little Bennie - on bennies) is funneling funny money to the red queen (big banks) and does so all the more when frightened by bad economic news.  Why just today we read that consumer confidence and retail sales are in the toilet.  We proles is tapped out.  And what does the NYSE, that faithful bellwether of our economy do?  Why, just this morning its up about .4%.  A note to all you players out there - as long as that caterpiller is afraid of the red queen, we will remain down this rabbit hole, where down is up and up is down.  Play the game accordingly.

Tue, 10/29/2013 - 10:16 | 4101177 Grande Tetons
Grande Tetons's picture

Consumer confidence would be much lower if the consumer actually knew how fucked they are. 

I am guessing they are about to find out. 

Tue, 10/29/2013 - 10:16 | 4101182 screw face
screw face's picture

now where's that plunge control...!

Tue, 10/29/2013 - 10:32 | 4101243 SAT 800
SAT 800's picture

!!! LOL.

Tue, 10/29/2013 - 10:28 | 4101220 Shizzmoney
Shizzmoney's picture

Real economy to fake economy: things are still shitty, holmes

Tue, 10/29/2013 - 10:51 | 4101324 RSloane
RSloane's picture

As a consumer I have complete confidence that my dollars are going to bring home fewer and fewer goods and that next year my dollars will not be able to purchase the level of consumption for services that I have this year. Perfect consumer confidence.  

Tue, 10/29/2013 - 10:27 | 4101221 White Owl
White Owl's picture

in confidence, as a secret or private matter, not to be divulged or communicated to others.

Seems to me every government chart that exists these days is made in confidence.

Tue, 10/29/2013 - 10:29 | 4101227 SheepDog-One
SheepDog-One's picture

What's wrong, connedsumers? Even free mortgage and free food not enough to make you 'upbeat' now? Aw....

Tue, 10/29/2013 - 10:29 | 4101232 hugovanderbubble
hugovanderbubble's picture

SELL EQUITIES, LONG BONDS, SELL HIGH YIELDS,

 

Long Spanish CDS 2,5 and 10yrs

Long French CDS

Long Italian CDS

Long Swedish CDS

Tue, 10/29/2013 - 10:29 | 4101237 Silverhog
Silverhog's picture

Gee... when do we get to hear more tapper talk from the all powerful OZ. 

Tue, 10/29/2013 - 10:33 | 4101249 TheBoyPlunger
TheBoyPlunger's picture

Why are we pretending data even matters anymore?

Tue, 10/29/2013 - 11:01 | 4101371 oddjob
oddjob's picture

Tradition.

Tue, 10/29/2013 - 11:00 | 4101366 Surging Chaos
Surging Chaos's picture

Can we expect new all-time record highs for the S&P again?

Gotta love the new normal...

Tue, 10/29/2013 - 11:53 | 4101563 Forward History
Forward History's picture

Amongst everyone I know who is pessimistic...I mean every one of them...the (correct) impression was that the middle class just got nailed by Obamacare. People are already making plans to scale back upcoming home projects, major purchases and the like. I know we are. The general sense, even among your average layman is--finally--that no one in Washington is advocating for the middle class anymore.

That's the kind of shared awakening that produces revolutions--often including guillotines.

Tue, 10/29/2013 - 18:00 | 4102911 dreadnaught
dreadnaught's picture

looks like we should be shipping out all Politicians off to the FEMA Camps, then .....

Tue, 10/29/2013 - 12:13 | 4101650 QQQBall
QQQBall's picture

FED needs to talk the confidence back up... maybe suggest they could increase QE amount if required. 

 

I have a buddy angling to get disability. HE is down from $52/hour and steady work to $20/hr and spotty work. That is an underlying trend - why work when they take it all? Game the system is weaving its way into Merikan psyche. You see other doing it and say say "Fook it, why keep fighting?" 

Tue, 10/29/2013 - 12:16 | 4101663 monopoly
monopoly's picture

I love the "sharp rise in mortgage rates" has a negative effect. In the scheme of things rates are still absurdly and artificially low. Many of us remember 6 and 7% as normal. 20% down, a real job, income verification and a good credit score. That is NORMAL> What happens when we return to what is real?

Game over! Then maybe the people will march. Until then, play on. 

Tue, 10/29/2013 - 12:33 | 4101742 W74
W74's picture

I'd like to see rates at 25%. And that's not some zerohedge sarcasm. I'm being dead honest.

Tue, 10/29/2013 - 12:21 | 4101687 firstdivision
firstdivision's picture

I would have expected this to spike.  I for one am confident that we're screwed.

Tue, 10/29/2013 - 12:31 | 4101734 W74
W74's picture

Why isn't there more confidence? Stox are at all teim hi's.

Don't people know that the Stawk market IS the economy? Clearly it's like Greenspan said: "People are screwy" because they don't behave the way the FED wants them to. 

Behave sheeple, behave the right way!!!

Tue, 10/29/2013 - 12:32 | 4101738 starman
starman's picture

ihpones and firewood for everybody for the winter!! they will not afford the heating bill, forward..............

Wed, 10/30/2013 - 00:02 | 4103788 jtlien
jtlien's picture

Yahoo finance is reporting that Nielsen's survey of Consumer Confidence is at a new high.

Common Zerohedge, you just didn't look deep enough.  But maybe this only getting people that can still afford cable.

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