High levels of U.S. household enthusiasm for stocks often foreshadow market declines. Historical patterns indicate that when consumer confidence reaches this level, significant downturns typically follow. Key instances include:
- January 2018: A poor year for stocks followed.
- Start of 2004: Initiated a mild downtrend lasting several months.
- March 2002: Marked the beginning of a major leg down in the 2000-2002 bear market.
- January 2000: Preceded the March start of the 2000-2002 bear market.
- March 1988: A false signal post-crash.
- July 1987: The market experienced a crash three months later.
- April 1998: Came just before the Russian crisis selloff.
The relationship between consumer confidence in stock market expectations (projected over the next 12 months) and the S&P 500 (SPX) is well-documented, reinforcing the trend that high consumer enthusiasm often leads to downturns.
This level of US household enthusiasm for stocks usually doesn't end well!
On most prior occasions when consumers have been this enthusiastic about stocks (since 80s), the market has taken a major tumble. See chart
Examples:
Jan 2018 -> not a good year for stocks
start of… pic.twitter.com/lcCmucoxij
— Longview Economics (@Lvieweconomics) November 4, 2024
Sources:
- The Conference Board – Consumer Confidence Index reports and historical data.
- Nasdaq – Analysis of stock market reactions to consumer confidence reports.
- Benzinga – Reports on consumer confidence and stock market sentiment.