Mortgage rates surging, check! Oil prices surging, check! Consumer Confidence surging, check? Equities surging, check? A funny thing happens when consumers face higher energy prices and mortgage rates - but, it seems, that this time is different (for now)...
A spike in mortgages has always led to drop in confidence...
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A breakout in oil prices has always led to drop in confidence...
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A breakout in oil has always led to turn in stocks...
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A turning point in confidence has always signaled a turn in stocks...
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Once the Consumer confidence turns, the Equity market is unable to sustain new highs. So we will have to wait for the next releases of consumer confidence. If indeed the measure turns lower (after 4 years and 4 months of gains like the last 2 cycles) then we would be careful with the sustainability of an elevated S&P 500.
Factors that are likely to impact Consumer confidence include mortgage rates and the Oil price as these have a significant impact on disposable income
- Mortgage rates have already risen substantially
- While only a short term break has been seen on Oil, we are concerned about the medium term setups. A break through $115 on Nymex and $128.40 would be bullish and could send the Oil price back towards the 2008 highs
This will effectively be a “tax” on growth
Source: Citi FX Technicals