Summary: In July, the Consumer Confidence Index (CCI) jumped to its highest level since last September, right before stocks started a 20% correction. Sometimes a high in the CCI coincides closely with a 5% or greater fall in stocks, but at other times the lag has been many months. In general, however, the risk/reward for investors over the next 6 months has not be favorable.
In July, the Conference Board's Consumer Confidence Index (CCI) jumped to the highest level since last September. According to the Conference Board: “Consumers are once again optimistic about current and prospective business and labor market conditions. In addition, their expectations regarding their financial outlook also improved."
The CCI was created in 1967, based on a monthly survey of 5,000 households. The report gives details about consumer attitudes (how would you rate the current business and employment situation; do you think your income will be higher or lower in 6 months) and buying intentions.
Increasing confidence is generally good for the economy as it drives consumption, which is 70% of the US economy.
But excessive confidence is not good, especially for the stock market. The timing is far from perfect but risk/reward and forward returns are often poor.
The current CCI is now 136. It has been higher in only 3 other periods: the late 1960s, the late 1990s and last year (the next 4 charts are from Sentimentrader). Enlarge any chart by clicking on it.
The CCI was 135 last September (lower than now) before SPX started a 20% fall that ended on Christmas Eve. There was virtually no lag between the high in CCI and the start of the fall in SPX.
