The demons behind the consumer confidence data

While average Americans are buoyant over some curiously strong jobs numbers, investors are increasingly bothered by a growing list of concerns.

By Anthony Mirhaydari Oct 12, 2012 12:03PM

Stewart Charles Cohen, Getty ImagesThe election continues to be about the things that divide us. The makers versus the takers. The 47% versus the 53%. The 99% versus the 1%. Much of that is political bluster.

 

But a real rift is forming between average consumers, who are feeling as good as they've been since 2007, and CEOs and investors, who are growing increasingly concerned about a list of nagging worries, including the unresolved "fiscal cliff' of tax hikes and spending cuts worth 5% of U.S. GDP, the Eurozone crisis, China's slowdown and the ongoing pullback in corporate spending.

 

You can see this in the way technical indicators of market strength are breaking down, presaging additional stock market losses in the days to come -- weakness that could very well pop the newfound confidence of average Americans.

 

 

First, the good news. This morning the University of Michigan's consumer sentiment survey jumped to its highest level since the recession started, thanks to a big increase in the expectations component. As the chart above shows, there has been steady upward progress since last summer's financial scare surrounding the Standard & Poor's downgrade of the U.S. credit rating, due largely to a gridlocked political system.

 

There is a very real risk that Congress will similarly bungle the handling of the fiscal cliff later this year.

 

 

This is clearly part of the reason stocks have been sliding stealthily over the past few weeks. The Dow Jones Industrial Average, after retesting its September high, is now grasping for support near its 50-day moving average and closed below its lower Bollinger Band -- a measure of volatility -- for two consecutive days. That's a sign of significant technical weakness that hasn't been seen since the market meltdown in May.

 

There's more.

 

Cyclical, economically sensitive stocks are lagging defensive issues, measures of breadth (such as the percentage of NYSE stocks above their 50-day moving average) are breaking down, and upside volume (the percentage of daily volume going into rising issues) has been falling since early September.

 

 

So while it's great that people are feeling more optimistic, the behavior of both CEOs and Wall Street investors suggests the euphoria will be short lived.

 

For this reason, I continue to recommend that my newsletter subscribers and money management clients maintain a defensive, cash-heavy positioning after capturing a near 9% gain in September.

 

Positions include a short against industrial engine maker Cummins (CMI).

 

Disclosure: Anthony has recommended CMI short to his newsletter subscribers and money management clients.

 

Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below. 

 

 

32Comments
Oct 12, 2012 1:04PM
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SINCE OBAMA TOOK OVER LIKE A DICTATOR I'VE HAD PAYCUT

LOST BONUS LOST VACATION HIGHER HEALTH RATES BUT

SERVICES CUT AND ENERGY AND FOOD PRICES DOUBLED!

THE COMPANY IS STRUGGLING JUST TO STAY OPEN BUT

THE BOSS IS TYPICAL LIBERAL SPENDING MONEY ON

HERSELF AND BIG 1% MANAGERS AND SCREW THE REST OF US!

THAT'S THE LIBERALS AND DEMOCRATS! THEY ARE NOT FOR MIDDLE CLASS!

YEAH HE'S DOING A GREAT JOB!

Oct 12, 2012 12:41PM
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If you can't dazzle with brilliance,baffle with useless charts and graphs..
Oct 12, 2012 3:45PM
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 The unresolved "fiscal cliff' of tax hikes and spending cuts worth 5% of U.S. GDP, we have got to start handling the debt. The Euro zone crisis, There is two ways to handle debt, pay it off or bankruptcy. China's slowdown, China is a financial bubble. The ongoing pullback in corporate spending, this is likely to be with us for years to come. 
Oct 12, 2012 4:28PM
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"But a real rift is forming between average consumers, who are feeling as good as they've been since 2007" I sure would like to find these people, as I only hear agony where I live. If the Romney/Ryan ticket prevails in November lots of good things will start happening quick. The managers of businesses will draw a sigh of relief and the threat has been removed. Cut and paste this and re-post in December if I am wrong.
Oct 12, 2012 1:03PM
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And the UofM derive their consumer sentiment numbers how????
Oct 12, 2012 4:19PM
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So the market was down today, because they are worried about all this crap that is going on overseas.  WHAT A PILE OF CRAP!!!!!!!
Oct 12, 2012 4:12PM
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Anthony

No comments on your hero... Mr Flip Flop-etch a sketch today...???

Oct 12, 2012 8:02PM
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Oh, okay, so consumer confidence has been up, which may justify the hiring in September and the decrease of U3, I was wondering about that.

Anyone have some kind of benchmark which explains that for every such and such increase in consumer confidence we can expect hiring to increase by such and such?

What exactly is the direction of causality: increase in employment increases consumer sentiment, or increase in consumer sentiment increases in employment?
Oct 12, 2012 3:54PM
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nice article tony - useful and a well-articulated piece.  no mention of the AAII sentiment survey?  even the amateurs can see this one coming .....
Oct 14, 2012 11:02AM
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LOL Where are the jobs he created? I have yet to see one . Its like the Bush tax cut ? The so called 1% and wall street was to create jobs with their tax cut? LMFAO Americas still looking for the so called great job creators to make jobs ? After a decade of tax cuts to the rich we should have 2% unemploymernt by now ? LOL BTW Obama does not create jobs , the private sector does... So can you name one single job the MITT WITT made ? Just one ? LOL ...
Oct 13, 2012 10:55AM
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Lindsay Lohan is supporting Romney as is porn star Jenna Jameson.See what drugs

do to a person?

Oct 12, 2012 4:25PM
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Any number that is good number before Romney/Ryan's last hurrah is considered as manipulated by right wing extemists like you, trump and welch. You ant people to suffer to win election by hook or crook more appropriately by crook.
Oct 12, 2012 2:34PM
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GreyGhost:Your case is strange.My family and friends have never had it so good as the last 45

months.Maybe you`re not flipping burgers goood enough.

Oct 12, 2012 4:05PM
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shoulda, woulda, coulda, blah, blah .... let's focus on what we can do here at home.  romney/ryan's numbers do not add up and their promises are hollow.  they want to repeat the failed policies of the past thirty years in order to siphon off more wealth to the top 1% - Romney gets another $50 million or so, and Ryan gets an elevated position at the Washington greed feeding trough with access to millions of campaign finance money, influence peddling and lobbyist payola.

 

first: embrace the fact that the only way to pay down $17 trillion is with a "balanced approach" - Clinton proved the mettle of this strategy very well.

 

second: elect the ticket willing to enact the approach (Obama/Biden)

 

third: get the House conservatives and tea baggers out of the way by either replacing them or making their "p ledge" activities with lobbyist gr over no rquist illegal - throw a few in jail or do some public corporal punishment like the canings they do in singapore.  we can never be great again with an ext rem ist roadblock in congress!

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