Tags: Further | Stock | Losses

Confidence Numbers Signal Further Stock Losses

Wednesday, 29 Aug 2007 11:13 AM

Earlier today, the Conference Board announced that its consumer confidence index fell sharply in August (to 105.0 from 112.6 in July), as home values continued to decline, stock prices dropped, and employment growth slowed.

Several other measures of investor confidence also declined during August, including the ABC/Washington Post consumer confidence index and the University of Michigan's consumer expectations index — a key leading economic and stock market indicator.

Yet, the Wall Street "experts" continue to tell investors that the economy is on strong footing and that people should take advantage of "cheap" stock prices by adding to their investment portfolios.

Yet, the Wall Street "experts" continue to tell investors that the economy is on strong footing and that people should take advantage of "cheap" stock prices by adding to their investment portfolios.

My question for these "experts" is, "Are they really interested in increasing their clients' wealth, or are they more interested in increasing their own wealth via the investment management fees they charge clients based on the dollar value of their assets under management?" I ask this question for the following reason: As you can see in the chart below, stock prices tend to fall when consumer confidence falters.

The consumer expectations index, which the University of Michigan has produced since 1959, is computed by surveying consumers about their expectations on future economic conditions. After rebounding slightly during July, the index fell in August to its lowest level in a year.

Meanwhile, the S&P/Case-Shiller home price index, which was also released earlier today, revealed that U.S. home prices fell by a record amount in the second quarter, as banks tightened their lending standards and home sales fell.

So, what are these reports telling us? They're suggesting that consumer spending, which accounts for 70 percent of the U.S.'s total output of goods and services, will likely continue to decline in the months ahead.

Just two weeks ago, Wal-Mart and Home Depot — the world's largest retailer and largest home-improvement store, respectively — reported disappointing second quarter sales and earnings, as consumers significantly reduced their discretionary spending. Wal-Mart's same-store sales rose by the smallest amount (1.9 percent) since the company began tracking same-store sales in 1980, while Home Depot's second-quarter same-store sales fell 5.2 percent.

Auto sales have also fallen significantly over the past two months, declining 11 percent in July, versus the same period a year ago.

So, my advice is for you to stop listening to the Wall Street "experts" and instead start focusing on the facts, because the facts suggest the U.S. economy will continue to slow over the coming months and that stock prices could fall sharply later this year. But, I'm not suggesting that you head for the hills, because there's always a bull market somewhere. And, many of these opportunities can be found in the more than 500 ETFs that are now available to investors.

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DavidFrazier
Earlier today, the Conference Board announced that its consumer confidence index fell sharply in August (to 105.0 from 112.6 in July), as home values continued to decline, stock prices dropped, and employment growth slowed. Several other measures of investor confidence also...
Further,Stock,Losses
477
2007-13-29
 

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