The last time consumer confidence plunged this steeply and deeply, the S&P 500 went into a multi-quarter bear market, correcting over 50%.
The Bloomberg Consumer Comfort Index fell for the eighth straight week to a six-year low for the week ending May 10. As if we needed another hint that the stock market is unnervingly out of sync with what’s going on in the real economy.
The consumer confidence measure fell to 35.8 last week. It’s now barely half of what it was at its 20-year high in January.
Meanwhile, the S&P 500 Index is up 16.7% over the eight-week period that consumer confidence plummeted. Equities rallied on through the most abysmal economic data in U.S. history. But layoffs numbering in the millions, crashing GDP, and low corporate earnings haven’t put consumers in the buying mood.
Julien Bittel, a hedge fund manager for Pictet Asset Management, shared a graph comparing the consumer comfort index to the S&P 500 since the early ’90s.
The global macro investor deadpanned, “Probably nothing.”
Consumers entered this economic crisis up to their eyeballs in record personal debt.
The Bloomberg Consumer Comfort Index steeply crashed before the stock market did ahead of the Dot Com bust and the 2008 financial crisis.
The weekly survey of 250 random U.S. adults measures consumer confidence in the overall economy and their personal financial situation.
Until Bloomberg acquired the licensing rights to the survey in 2011, it was the ABC News Consumer Comfort Index. Polling firm Langer Research Associates has taken the measure since 1985. Many analysts have made the case that consumer confidence is a lagging indicator for the stock market.
But comparing the Consumer Comfort Index to the S&P 500 since the early ’90s shows deep plunges in consumer confidence preceded the last two broad, multi-quarter capitulations in stocks.
The magnitude of the present consumer confidence plunge is comparable to those preceding the last two recessions. During those two extended bear markets, the S&P 500 crashed nearly 50% and over 50% from peak to trough.
Today, the equities benchmark is up for the year after an incredible rally from March lows.
Mohamed El-Erian, chief economic advisor at Allianz, told CNBC on Thursday:
What you see happening now is a tug of war between continuously worsening fundamentals and policy hopes… It tells you that this market needs continuous support from the policy side in order to, in my view, overcome the weaker fundamentals for now.
El-Erian was on the program to discuss Fed Chairman Jerome Powell’s dire comments warning of lasting economic damage without more fiscal stimulus from Congress.
There isn’t much left for the Fed or Congress to do to continue supporting this fragile stock market rally. The Fed has already slashed rates to zero and undertaken unprecedented monetary interventions. Congress has already passed an unprecedented $2 trillion emergency stimulus bill.
Fiscal and monetary liquidity can grease the wheels of the economy, but can’t turn them for us. Americans will have to get back to work producing goods and services of value.
They’ll need consumer confidence back to create the demand for those goods and services. But with so many jobless and the economy heading into the first depression of our lifetimes, that will take time to recover.
With the policy side nearly exhausted, second-quarter economic data and corporate earnings will hit the stock market hard. Then the fear of missing out on buying the dip will turn to fear, uncertainty, and doubt on Wall Street again.