This Simple But Powerful Indicator is Saying the Bull Market Will Continue
This article was originally published on this site
Regular Digest readers know we’re keeping an eye on the ‘yield curve’…
In fact, as we’ve discussed, both Porter and Steve Sjuggerud agree that seeing the yield curve “invert” – where the spread between short- and long-term rates falls below zero – could be our first warning that the end of the bull market is near.
But our colleague Dr. David “Doc” Eifrig notes another powerful indicator you should be watching. And unlike interest-rate spreads, he says it’s so simple, even a total novice can understand it. As he explained in his latest issue of Retirement Trader, out last Friday…
Why do investors constantly lose sight of what drives the economy? The stock market seems like a big, complex place. And we’re always looking for some big, complex explanation for what drives the stock market up and down…
Instead, you need to focus on one thing. And the good news is that it’s not hard to find or complicated to understand.
If you had to choose one indicator to predict the direction of stock prices, you should focus on the behavior of consumers.
As Doc noted, consumer spending makes up around 70% of our economy…
It determines the decisions of almost every business. It’s the key driver in investment returns. And most important, as he showed Retirement Trader subscribers, changes in this metric are highly correlated to the stock market…
The growth in consumer confidence has a near-perfect record of showing which way the market will be heading. For nearly two decades now, changes in consumer confidence have tended to lead the market by a few months with startling regularity.
While the positive rate of growth in consumer confidence has dipped recently, it has still risen about 20% over the last year. This relationship suggests we could see another 20% gain for stocks.
Bottom line, you shouldn’t expect this bull market to end until consumers stop spending.
Doc also noted that his extensive travels around the country have confirmed this bullish stance…
Everywhere I go, I see the signs of a strong economy. Airplanes are full. Contractors are busy. Homes are selling after being on the market for less than a week. Have you been out for holiday shopping yet? Every place I’ve gone to has been busier than I’ve seen in a decade. The broader numbers back those firsthand observations. Take your pick…
Real personal consumption expenditures have steadily been growing at 2% a year for a couple of years now. By itself, that’s nearly enough to keep an economy healthy.
Holiday shopping has kicked off with a blast, too. The National Retail Federation suggests that 174 million Americans shopped over Thanksgiving weekend (10 million more than last year) and spent an average of $335. It projects total spending is up about 4% over last year. Online sales on Black Friday and Cyber Monday were up nearly 17% over last year, according to digital-marketing researcher Adobe Digital Insights.
In short, Doc says the bottom line is simple…
All signs say the economy remains healthy today. And this suggests the long bull market will continue…
While actual spending is up, confidence remains high as well. That suggests that spending will keep rising so long as consumers stay happy. Right now, they are happier than they’ve been in nearly two decades…
As the biggest part of our economy, we believe there’s no better sign than confident consumers.
Regards,
Justin Brill
