Here’s a pretty good point to consider in regards to the recently horrible consumer confidence data released two days back.
Consumers aren’t the best forecasters of the economy. The last time they were as morbid about their current situation as now, was right before a huge recovery for both markets and the economy.
Here’s one thing to remember before we get too dejected by this news, however: The last time that the Present Situation Index was as low as it is now was at the end of 1982 and early 1983. Coming as it did at the beginning of a two-decades-long bull market, that was a great time to get into stocks.
It turns out, in fact, that consumers are a great contrarian indicator. They feel the best at the end of economic expansions, just when they should be becoming more cautious. And they feel their worst at the depth of recessions.
That low point for consumer sentiment in late 1982 and early 1983, for example, came right at the end of the steep 1981-1982 recession. Indeed, the latter stages of every recession since the 1960s have been accompanied by a plunging Present Situation Index. And in all cases, the stock market at such times represented very attractive long-term values.
Even if we’re not due for an enormous recovery on the scale of the 1980’s, it’s best to remember that when it comes to consumer sentiment, it’s darkest right before the dawn.
(Via Abnormal Returns)
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