REVEALED: The Surprise Relationship Between Consumer Confidence And Stocks

confused man computer

The relationship between consumer confidence and stock markets is a surprising one.  It turns out that stock returns are highest when confidence is low, and returns are mediocre when confidence is high.

Liz Ann Sonders, chief investment strategist of Charles Schwab, recently published a note that list reasons to be bullish on stocks and the economy.

She points to Ned Davis Research: when consumer confidence is above 110, the average annualized return of the Dow is -0.2%.  When confidence is between 66 and 110, average annual returns are +6.4%.

However, when consumer confidence is below 66, average annual returns are a staggering 12.5%.

Last week, we learned consumer confidence plunged to 39.8.  So, for those with a strong stomach, now may be a great time to buy stocks.

In her note, Sonders also points to the peculiar divergence between confidence and retail sales as of late. See the chart:


Photo: Schwab

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