Wednesday, August 27, 2014

Upbeat Consumer Optimism Is Bullish for Economy & Stocks (excerpt)

Rising consumer confidence in the US is confirming my bullish outlook for the economy and stocks. Yesterday’s release of the August Consumer Confidence Index (CCI) was especially upbeat. It is based on a survey conducted monthly by the Conference Board. I think it is more sensitive to labor market conditions than the survey conducted by the University of Michigan to derive their Consumer Sentiment Index (CSI). Here are some of the key highlights that impressed me the most:

(1) The CCI jumped 2.1 points to 92.4 in August. That’s the highest reading since October 2007. The gain was led by the CCI’s present situation component. Also leading the way higher was the CCI for consumers who are 55 years old or older. They tend to have more income and wealth, and to spend more when they are optimistic.

(2) The Conference Board reported that the “jobs plentiful” response rate jumped from 15.6% during July to 18.2% during August, the highest since March 2008. The CCI is highly correlated with the quits rate. The latter rose in June to the highest reading since July 2008. August’s CCI suggests that it continued to rise during July and August. As Fed Chair Janet Yellen has noted, when workers perceive that jobs are plentiful, they are more likely to seek another job and quit their current one.

(3) I average the CCI and CSI to derive our Consumer Optimism Index (COI). It was little changed at 85.8 in August from July’s 86.1, which was the best level since October 2007. The present situation index jumped to 97.1, the highest since January 2008. The expectations component remains in its flattish and choppy range of the past couple of years.

Today's Morning Briefing: 2015 By 2015? (1) Bullseye! (2) Bull running ahead of schedule. (3) 2015 math: E = $140, P/E = 16.5, P = 2310. (4) No recession in 2015, so no bear market. (5) Positive thoughts on revenues, margins, and buybacks. (6) The longer the expected economic expansion, the higher the P/E. (7) Won’t Fed tightening be frightening in 2015? (8) Monetary normalization coming in baby steps. (9) The fifth-longest bull market of the 44 since 1928. (10) Consumer confidence rising because jobs are more plentiful. (11) Focus on overweight-rated S&P 500 Industrials. (More for subscribers.)

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